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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 1-7094
EASTGROUP PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 13-2711135
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
300 ONE JACKSON PLACE
188 EAST CAPITOL STREET
JACKSON, MISSISSIPPI 39201
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (601) 354-3555
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
SHARES OF COMMON STOCK, $.0001 PAR VALUE,
SHARES OF SERIES A 9.00% CUMULATIVE REDEEMABLE PREFERRED, $.0001 PAR VALUE
NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES (x) NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this Chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 9, 2001 was $354,449,142.
The number of shares of common stock, $.0001 par value, outstanding as of
March 9, 2001 was 15,859,022.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE PROXY STATEMENT FOR THE 2001 ANNUAL MEETING OF
SHAREHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III.
PART I
ITEM 1. BUSINESS.
Organization
EastGroup Properties, Inc. (the "Company" or "EastGroup") is an equity real
estate investment trust ("REIT") organized in 1969. The Company has elected to
be taxed as a real estate investment trust under Sections 856-860 of the
Internal Revenue Code (the Code), as amended, and intends to continue to qualify
to be so taxed.
Administration
The Company is self-administered and maintains its principal executive
offices in Jackson, Mississippi. As of March 9, 2001, EastGroup had 46 full-time
and two part-time employees.
Current Operations
EastGroup is a self-administered equity real estate investment trust
focused on the acquisition, ownership and development of industrial properties
in major Sunbelt markets throughout the United States. Its strategy for growth
is based on its property portfolio orientation toward premier distribution
facilities located near major transportation centers. EastGroup's portfolio
currently includes 17 million square feet with an additional 913,000 square feet
of properties under development. EastGroup's press releases are available on the
worldwide web at www.eastgroup.net.
During 2000, EastGroup expanded its portfolio by the transfer of eight
properties (664,000 square feet) from industrial development to industrial
properties with costs of $38,948,000, through acquisition of five properties
(335,000 square feet) and an 18-acre land parcel with total costs of $13,628,000
and through capital improvements of $10,611,000 on existing properties. In
addition to direct property acquisitions and developments, EastGroup seeks to
grow its portfolio through the acquisition of other public and private real
estate companies and REITs. In 2000, the Company invested $4,964,000 in the
stock of REITs. The recycling of capital has been an important element of
EastGroup's growth strategy. Through recycling, EastGroup seeks to improve the
physical quality and location of its properties and increase the clustering of
assets in core submarkets. During 2000, the Company sold one industrial
property, one apartment complex and a parcel of land for net proceeds of
$17,170,000 and also realized deferred gains of $94,000 from a 1999 sale for
total gains for financial reporting purposes of approximately $8,771,000. In
addition, the Company realized gains of $2,154,000 on its investments in
Franklin Select Realty Trust (Franklin) and Pacific Gulf Properties (PAG) due to
liquidating distributions from these companies. The Company expects further
distributions from PAG in 2001 as PAG liquidates its assets intended for sale.
See Management's Discussion and Analysis of Financial Condition and Results of
Opertions.
The Company intends to continue to qualify as a REIT under the Code.
Ordinary taxable income will continue to be paid to the stockholders. The
Company has the option of (i) paying out capital gains to the stockholders with
no tax to the Company, or (ii) paying a capital gains tax and retaining the
gains on sales, or (iii) treating the capital gains as having been distributed
to the stockholders, paying the tax on the gain deemed distributed and
allocating the tax paid as a credit to the stockholders. The book value of the
property sold and the retained portion of capital gains, if any, are generally
reinvested by the Company.
EastGroup incurs short-term floating rate debt in connection with the
acquisition of real estate and payment of costs of development projects, and
attempts to replace floating rate debt with fixed-rate term loans secured by
real property or to repay the debt with the proceeds of sales of equity
securities as market conditions permit. EastGroup also may, in appropriate
circumstances, acquire one or more properties in exchange for EastGroup's equity
securities.
EastGroup holds its properties as long-term investments, but may determine
to sell certain properties that no longer meet its investment criteria. The
Company may provide financing in connection with such sales of property if
market conditions so require, but it does not presently intend to make loans
other than in connection with such transactions.
EastGroup has no present intentions of underwriting securities of other
issuers. The strategies and policies set forth above were determined and are
subject to review by EastGroup's Board of Directors, which may change such
strategies or policies based upon its evaluation of the state of the real estate
market, the performance of EastGroup's assets, capital and credit market
conditions, and other relevant factors. EastGroup provides annual reports to its
stockholders, which contain financial statements audited by the Company's
independent public accountants.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knows of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to use such property as collateral in its borrowings. All of
EastGroup's properties have been subjected to environmental audits by
independent environmental consultants, which reports have not revealed any
potential significant environmental liability. Management of EastGroup is not
aware of any environmental liability that would have a material adverse effect
on EastGroup's business, assets, financial position or results of operations.
ITEM 2. PROPERTIES.
The Company conducts its primary operations from approximately 11,000
square feet of rented office space located at 300 One Jackson Place, 188 East
Capitol Street, Jackson, Mississippi. In March 1998, EastGroup acquired Ensign
Properties, Inc., an independent industrial developer in Orlando. This
acquisition allowed EastGroup to become self-managed in all of its Florida
markets. It also significantly increased the Company's development capability in
Florida. In September 1998, EastGroup opened a western regional office based in
Phoenix, Arizona. This office manages the Company's operations in Arizona and
California that total over 5.3 million square feet of industrial space.
At December 31, 2000, the Company did not own any single property that is
10% or more of total book value or 10% or more of total gross revenues and thus
is not subject to the requirements of Items 14 and 15 of Form S-11.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not presently involved in any material litigation nor, to
its knowledge, is any material litigation threatened against the Company or its
properties, other than routine litigation arising in the ordinary course of
business or which is expected to be covered by the Company's liability
insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
SHARES OF COMMON STOCK MARKET PRICES AND DIVIDENDS
The Company's shares of Common Stock are presently listed for trading on
the New York Stock Exchange under the symbol "EGP." The following table shows
the high and low share prices for each quarter reported by the New York Stock
Exchange during the past two years and per share distributions paid for each
quarter.
Calendar 2000 Calendar 1999
--------------------------------------------------------- -----------------------------------------
Quarter High Low Distributions High Low Distributions
---------------- ------------ ---------- ---------------- -------------- --------- ----------------
First $21.56 17.50 $.38 $19.13 15.38 $.36
Second 22.19 19.88 .38 21.88 15.81 .36
Third 24.00 20.56 .41 21.13 17.38 .38
Fourth 23.38 18.94 .41 18.81 16.25 .38
---------------- ----------------
$1.58 $1.48
================ ================
SHARES OF SERIES A PREFERRED STOCK MARKET PRICES AND DIVIDENDS
The Company's shares of Series A 9.00% Cumulative Redeemable Preferred
Stock are also listed for trading on the New York Stock Exchange and trade under
the symbol "EGP PrA." The following table shows the high and low preferred share
prices for each quarter reported by the New York Stock Exchange during the past
two years and per share distributions paid for each quarter.
Calendar 2000 Calendar 1999
--------------------------------------------------------- -----------------------------------------
Quarter High Low Distributions High Low Distributions
---------------- ------------ ---------- ---------------- -------------- --------- ----------------
First $21.00 18.38 $.5625 $25.25 22.25 $.5625
Second 21.25 19.63 .5625 24.75 21.75 .5625
Third 23.25 20.44 .5625 24.50 22.25 .5625
Fourth 23.19 20.88 .5625 22.75 18.00 .5625
---------------- ----------------
$2.2500 $2.2500
================ ================
As of March 9, 2001, there were approximately 1,300 holders of record of
the Company's 15,859,022 outstanding shares of common stock. Approximately 91%
of the Company's outstanding common shares are held by CEDE & Co., which is
accounted for as a single shareholder of record for multiple common stock
owners. CEDE & Co. is a national clearinghouse for the settlement of trades in
corporate, municipal and mortgage-backed securities and performs asset services
for its participating banks and broker/dealers. All of the $1.58 per common
share total distributions paid in 2000 and the $1.48 per share distributions
paid in 1999 were taxable as ordinary income for federal income tax purposes.
As of March 9, 2001, there were 70 holders of record of the Company's
1,725,000 outstanding shares of Series A preferred stock. Approximately 97% of
the Company's outstanding Series A preferred shares are held by CEDE & Co.,
which is accounted for as a single shareholder of record for multiple preferred
stock owners. All of the $2.25 per share Series A preferred stock distributions
paid in both 2000 and 1999 were taxable as ordinary income for federal income
tax purposes.
SHARES OF SERIES B PREFERRED STOCK MARKET PRICES AND DIVIDENDS
In September 1998, EastGroup entered into an agreement with Five Arrows
Realty Securities II, L.L.C., an investment fund managed by Rothschild Realty,
Inc., a member of the Rothschild Group, providing for the sale of up to
2,800,000 shares of Series B 8.75% Cumulative Convertible Preferred Stock at a
net price of $24.50 per share. The Series B Preferred Stock, which is
convertible into common stock at a conversion price of $22.00 per share, is
entitled to quarterly dividends in arrears equal to the greater of $0.547 per
share or the dividend on the number of shares of common stock into which a share
of Series B Preferred Stock is convertible. In December 1998, the Company sold
$10 million of the Series B Preferred Stock to Five Arrows and the remaining $60
million in September 1999. All of the $2.188 per share Series B distributions
paid in 2000 and the $1.641 per share distributions paid in 1999 were taxable as
ordinary income for federal income tax purposes.
The following table sets forth selected consolidated financial data for the
Company and should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this report.
Years Ended December 31,
----------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- ------------ -------------- --------------- ---------------
(In thousands, except per share data)
OPERATING DATA:
Revenues
Income from real estate operations $ 93,906 83,320 74,312 49,791 37,143
Interest 975 1,367 1,868 2,571 1,718
Gain on securities 2,154 30 - - 6
Other 1,068 1,519 548 1,260 904
--------------- ------------- -------------- ---------------- ------------
98,103 86,236 76,728 53,622 39,771
--------------- ------------- -------------- ---------------- ------------
Expenses
Operating expenses from real estate operations 22,359 19,941 19,328 14,825 13,262
Interest 18,570 17,688 16,948 10,551 8,930
Depreciation and amortization 23,449 20,239 16,625 10,409 7,759
General and administrative 5,607 4,519 3,771 2,923 2,356
--------------- ------------- -------------- ---------------- ------------
69,985 62,387 56,672 38,708 32,307
--------------- ------------ -------------- ---------------- ------------
Income before minority interest and gain on
real estate investments 28,118 23,849 20,056 14,914 7,464
Minority interests in joint ventures 377 433 433 512 289
--------------- ------------ -------------- ---------------- ------------
Income before gain on real estate investments 27,741 23,416 19,623 14,402 7,175
Gain on real estate investments 8,771 15,357 9,713 6,377 5,334
---------------- ----------- -------------- ---------------- ------------
Income before cumulative effect of change
in accounting principle 36,512 38,773 29,336 20,779 12,509
Cumulative effect of change in accounting
principle - 418 - - -
---------------- ----------- -------------- ---------------- ------------
Net income 36,512 38,355 29,336 20,779 12,509
Preferred dividends-Series A 3,880 3,880 2,070 - -
Preferred dividends-Series B 6,128 2,246 - - -
---------------- ----------- -------------- ---------------- ------------
Net income available to common shareholders $ 26,504 32,229 27,266 20,779 12,509
================ =========== ============== ================ ============
BASIC PER SHARE DATA:
Net income available to common shareholders $ 1.70 2.01 1.67 1.58 1.44
Weighted average shares outstanding 15,623 16,046 16,283 13,176 8,677
DILUTED PER SHARE DATA:
Net income available to common shareholders $ 1.68 1.99 1.66 1.56 1.43
Weighted average shares outstanding 15,798 17,362 16,432 13,338 8,749
OTHER PER SHARE DATA:
Book value (at end of year) $ 16.55 16.47 16.12 15.88 13.78
Common distributions declared 1.58 1.48 1.40 1.34 1.28
Common distributions paid 1.58 1.48 1.40 1.34 1.28
Years Ended December 31,
----------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------------
(In thousands, except per share data)
OTHER DATA:
Funds from operations:
Net income $ 36,512 38,355 29,336 20,779 12,509
Preferred dividends-Series A (3,880) (3,880) (2,070) - -
Convertible preferred dividends-Series B (6,128) (2,246) - - -
----------------------------------------------------------------------------
Net income available to common shareholders 26,504 32,229 27,266 20,779 12,509
Add:
Depreciation and amortization 23,449 20,239 16,625 10,409 7,759
Real estate investment trust dividends (equity method) - - - - 77
Cumulative effect of change in accounting principle (1) - 418 - - -
Convertible preferred dividends-Series B 6,128 2,246 - - -
Limited partnership units 18 48 - - -
Deduct:
Gain on depreciable real estate investments, net (2) (8,151) (15,357) (9,713) (6,377) (5,340)
Equity in earnings of real estate investment trust - - - - (43)
Other (158) (241) (324) (284) (142)
----------------------------------------------------------------------------
Funds from operations (2) $ 47,790 39,582 33,854 24,527 14,820
============================================================================
Cash flows provided by (used in):
Operating activities $ 53,016 44,236 36,205 23,817 17,101
Investing activities (43,147) (68,319) (130,757) (80,131) (3,308)
Financing activities (9,665) 23,956 96,038 57,174 (13,381)
BALANCE SHEET DATA (AT END OF YEAR):
Real estate investments, at cost (3) $ 703,846 649,754 582,565 419,857 292,620
Real estate investments, net of accumulated
depreciation and allowance for losses (3) 633,726 598,175 539,729 387,545 269,058
Total assets 666,205 632,151 567,548 413,127 281,455
Mortgage, bond and bank loans payable 270,709 243,665 236,816 147,150 129,078
Total liabilities 290,813 262,839 251,524 155,812 136,129
Total shareholders' equity 375,392 369,312 316,024 257,315 145,326
(1) Represents previously capitalized start-up and organizational costs
that were expensed on January 1, 1999 in accordance with the requirements of
Statement of Position 98-5.
(2) EastGroup defines funds from operations (FFO), consistent with the
National Association of Real Estate Investment Trusts (NAREIT) definition, as
net income (loss)(computed in accordance with generally accepted accounting
principles (GAAP)), excluding gains or losses from sales of depreciable real
estate property, plus real estate related depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. Effective
January 1, 2000, NAREIT clarified the definition of FFO to include gains from
sales of nondepreciable real estate (land). Gains on land for 2000 have been
included in FFO and gains on land for the previous years have not been included
in FFO. Gains on land were $348,000 for 1999, $44,000 for 1998, $98,000 for 1997
and $243,000 for 1996. The Company believes that FFO is an appropriate measure
of performance for equity real estate investment trusts. FFO is not considered
as an alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available for the Company's
cash needs, including the ability to make distributions.
(3) Does not include a 50% controlled joint venture investment of
$4,367,000 at December 31, 1996 that was sold in 1997, or the $500,000 land
purchase-leaseback sold in 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Assets of EastGroup were $666,205,000 at December 31, 2000, an increase of
$34,054,000 from December 31, 1999. Liabilities (excluding minority interests)
increased $28,617,000 to $289,116,000; minority interests decreased $643,000 to
$1,697,000; and stockholders' equity increased $6,080,000 to $375,392,000 during
the same period. Book value per common share increased from $16.47 at December
31, 1999 to $16.55 at December 31, 2000.
Industrial properties increased $50,262,000 during the year ended December
31, 2000 as compared to 1999. This increase was primarily due to the transfer of
eight properties from industrial development with total costs of $38,948,000,
the acquisition of six properties for $13,628,000 (as detailed below), capital
improvements of $10,180,000 and the reclassification of one property from real
estate held for sale with costs of $2,749,000. These increases were offset by
the reclassifications of four properties to real estate held for sale with costs
of $15,243,000.
Industrial Properties
Industrial Properties Acquired Cost
in 2000 Location Size Date Acquired (In thousands)
- ---------------------------------- ------------------------- ----------------- ----------------- -------------------
Broadway Industrial #3 Tempe, Arizona 56,000 sq.ft. 01-13-00 $2,517
Founders Business Center El Paso, Texas 77,000 sq.ft. 04-11-00 2,302
Interstate Distribution Center III Dallas, Texas 78,000 sq.ft. 05-19-00 2,528
Broadway Industrial #4 Tempe, Arizona 40,000 sq.ft. 07-27-00 2,032
West Loop I Houston, Texas 84,000 sq.ft. 09-12-00 2,337
World Houston Land Houston, Texas 18 acres 12-27-00 1,912
-------------------
Total Industrial Acquisitions $13,628
===================
Industrial development increased $1,713,000 during the year ended December
31, 2000. This increase resulted primarily from development costs of $40,661,000
on development properties, offset by development properties transferred to
industrial properties with costs of $38,948,000, as detailed below.
Industrial Development
Costs Incurred
---------------------------------------
Size at For the 12 Months Cumulative as Estimated
Completion Ended 12/31/00 of 12/31/00 Total Costs (1)
- ----------------------------------------- ----------------- ---------------------------------------------------------
(Square feet) (In thousands)
Lease-Up:
Glenmont II
Houston, Texas 104,000 $2,448 2,916 3,780
Palm River North I & III
Tampa, Florida 116,000 3,362 4,928 6,290
Westlake II
Tampa, Florida 70,000 3,343 3,343 4,270
Sunport I
Orlando, Florida 56,000 1,851 3,122 3,200
Beach Commerce Center
Jacksonville, Florida 46,000 2,029 2,029 2,800
World Houston 11
Houston, Texas 126,000 3,135 3,721 5,460
Interstate Commons II
Phoenix, Arizona 59,000 1,889 2,209 2,900
----------------- --------------------- ----------------- -----------------
Total Lease-up 577,000 18,057 22,268 28,700
----------------- --------------------- ----------------- -----------------
Under Construction:
Techway Southwest I
Houston, Texas 126,000 1,888 1,888 5,040
Kyrene II
Tempe, Arizona 60,000 1,169 1,809 3,710
Walden Distribution Center I
Tampa, Florida 90,000 442 779 4,240
Sunport Center II
Orlando, Florida 60,000 762 762 3,500
----------------- --------------------- ----------------- -----------------
Total Under Construction 336,000 4,261 5,238 16,490
----------------- --------------------- ----------------- -----------------
Prospective Development:
Phoenix, Arizona 40,000 237 237 2,000
Tucson, Arizona 70,000 299 299 3,500
Tampa, Florida 230,000 1,351 1,835 9,200
Orlando, Florida 339,000 1,723 1,723 18,900
Houston, Texas 1,017,000 5,593 5,593 45,300
----------------- --------------------- ----------------- -----------------
Total Prospective Development 1,696,000 9,203 9,687 78,900
----------------- --------------------- ----------------- -----------------
2,609,000 $31,521 37,193 124,090
================= ===================== ================= =================
Development Transferred to
Industrial Properties During Twelve
Months Ended December 31, 2000:
John Young II
Orlando, Florida 47,000 $1,563 4,125
Rampart Distribution Center III
Denver, Colorado 92,000 982 5,736
Sample 95 II
Pompano, Florida 70,000 556 4,057
Chestnut Business Center
City of Industry, California 75,000 785 5,139
Palm River North II
Tampa, Florida 96,000 1,996 5,142
Westlake I
Tampa, Florida 70,000 534 4,836
Glenmont I
Houston, Texas 108,000 998 4,204
Main Street
Carson, California 106,000 1,726 5,709
----------------- --------------------- -----------------
Total Transferred to Industrial 664,000 $9,140 38,948
================= ===================== =================
(1) The information provided above includes forward-looking data based on
current construction schedules, the status of lease negotiations with potential
tenants and other relevant factors currently available to the Company. There can
be no assurance that any of these factors will not change or that any change
will not affect the accuracy of such forward-looking data. Among the factors
that could affect the accuracy of the forward-looking statements are weather or
other natural occurrence, default or other failure of performance by
contractors, increases in the price of construction materials or the
unavailability of such materials, failure to obtain necessary permits or
approvals from government entities, changes in local and/or national economic
conditions, increased competition for tenants or other occurrences that could
depress rental rates, and other factors not within the control of the Company.
Other real estate properties decreased by $6,919,000 as a result of the
reclassification of an office building to real estate held for sale with costs
of $7,037,000, offset by capital improvements of $118,000.
Real estate held for sale increased $8,551,000 primarily due to the
reclassification of four industrial properties and one office building to real
estate held for sale with total costs of $22,280,000 and to capital improvements
of $313,000. These increases were offset by the sales of one industrial
property, one apartment complex and one parcel of land with total costs of
$11,293,000 and by the transfer of one industrial property to real estate
properties with a cost of $2,749,000.
Accumulated depreciation on real estate properties and real estate held for
sale increased $18,541,000 due to depreciation expense of $21,354,000, offset by
the sale of two properties with total accumulated depreciation of $2,813,000.
Mortgage loans receivable increased $485,000 during 2000 as a result of
advances of $4,609,000 offset by repayments of $4,124,000 that included the
payoffs of the BayPointe loan of $1,965,000 and the Wilson Street loan of
$2,100,000.
Investment in real estate investment trusts (REITs) decreased $7,640,000
primarily as a result of liquidating dividends from Franklin and the first
liquidating dividend from PAG. The Company's basis in these shares decreased
from $15,040,000 to zero. PAG has sold a significant portion of its assets and
has announced that it intends to sell most of its remaining assets. Any further
distributions received by the Company will be recorded as realized gains (see
Liquidity and Capital Resources). These decreases were offset by the investment
of $4,964,000 in other REIT shares and from an increase of $2,436,000 in the
market value of the Company's investments in PAG and other REIT shares.
Other assets increased $5,939,000 primarily as a result of increases in tax
deferred cash escrows of $3,525,000 and unamortized leasing commissions and loan
costs of $1,731,000.
Mortgage notes payable increased $20,044,000 as a result of the Company's
new $26,300,000 nonrecourse first mortgage loan and the University Business
Center new loan of $11,500,000. These increases were offset by regularly
scheduled principal payments of $3,839,000 and the repayment of $8,411,000 on
the University Business Center Cigna note and $5,506,000 on the La Vista
Apartments note paid off at the sale closing.
Notes payable to banks increased $7,000,000 as a result of borrowings of
$182,519,000 offset by payments of $175,519,000. The Company's credit facilities
are described in greater detail under Liquidity and Capital Resources.
Accounts payable and accrued expenses increased $1,622,000 primarily as a
result of a net increase in payables due to timing differences.
Minority interest in operating partnership decreased from $650,000 to zero
as a result of the repurchase of all outstanding limited partnership units
during 2000.
Accumulated other comprehensive income increased $2,436,000 as a result of
an increase in the market value of the Company's investments recorded in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," offset by liquidating dividends from Franklin and PAG.
As a result of the adoption of a new compensation plan, unearned
compensation of $3,716,000 was recorded to show the effect of the initial
incentive restricted stock issuance. This amount was offset by amortization of
$372,000 to record the expense for 2000 associated with the plan. See Note 7 of
the Notes to the Consolidated Financial Statements for disclosure as to this
plan.
Undistributed earnings increased $1,531,000 as a result of net income of
$36,512,000 exceeding dividends on common stock of $24,973,000 and dividends on
preferred stock of $10,008,000.
RESULTS OF OPERATIONS
2000 Compared to 1999
Net income available to common shareholders for 2000 was $26,504,000 ($1.70
per basic share and $1.68 per diluted share) compared to net income available to
common shareholders in 1999 of $32,229,000 ($2.01 per basic share and $1.99 per
diluted share). Income before gain on real estate investments was $27,741,000 in
2000 compared to $23,416,000 in 1999. Gain on real estate investments was
$8,771,000 in 2000 compared to $15,357,000 in 1999. Income before cumulative
effect of change in accounting principle was $36,512,000 in 2000 compared to
$38,773,000 in 1999. Cumulative effect of change in accounting principle was
zero in 2000 and $418,000 in 1999. The paragraphs that follow describe the
results of operations in greater detail.
Property net operating income (PNOI) from real estate properties, defined
as income from real estate operations less property operating expenses (before
interest expense and depreciation), increased by $8,168,000 or 12.9% for 2000,
compared to 1999. PNOI by property type and percentage leased for industrial
were as follows:
Property Net Operating Income
PNOI
Years Ended Percent
December 31, Leased
----------------------------- -------------------------------
2000 1999 12-31-00 12-31-99
-------------- -------------- ---------------- --------------
(In thousands)
Industrial $69,121 59,954 96.4% 97.0%
Other 2,426 3,425
-------------- --------------
Total PNOI $71,547 63,379
============== ==============
PNOI from industrial properties increased $9,167,000 for 2000 compared to
1999 primarily due to acquisitions, rental rate increases and development
properties that achieved stabilized operations in 1999 and 2000. Industrial
properties held throughout 2000 and 1999 showed an increase in PNOI of 3.2% for
2000.
Gain on securities increased $2,124,000 for 2000 compared to 1999 primarily
due to the liquidating distributions from Franklin and PAG as discussed in the
Financial Condition section.
Bank interest expense (excluding amortization of loan costs of $264,000 for
2000 and $251,000 for 1999) increased $1,550,000 from $6,843,000 in 1999 to
$8,393,000 in 2000. Average bank borrowings were $107,221,000 in 2000 compared
to $104,335,000 in 1999 with average interest rates of 7.83% in 2000 compared to
6.56% in 1999. Bank interest rates at December 31, 2000 were 8.00% on
$92,000,000 and 8.75% on $10,000,000. Bank interest rates at December 31, 1999
were 7.50% on $77,000,000, 7.44% on $8,000,000 and 7.75% on $10,000,000.
Interest costs incurred during the period of construction of real estate
properties are capitalized and offset against the bank interest expense. The
interest costs capitalized on real estate properties for 2000 were $2,060,000
compared to $1,834,000 for 1999. See Note 5 in the Notes to the Consolidated
Financial Statements for disclosure relating to the Company's notes payable to
banks.
Interest expense on real estate properties (excluding amortization of loan
costs of $169,000 and $152,000 for 1999) decreased $472,000 from $12,276,000 in
1999 to $11,804,000 in 2000, primarily as a result of the payoffs of five
mortgages in 1999 and two in 2000, offset by increases due to the issuance of
one mortgage and assumption of one mortgage in 1999 and to the issuances of two
mortgages in 2000. See Note 6 in the Notes to the Consolidated Financial
Statements for details of these transactions.
Depreciation and amortization increased $3,210,000 in 2000 compared to
1999. This increase was primarily due to the industrial properties acquired in
both 1999 and 2000 and development properties that achieved stabilized
operations in 1999 and 2000, offset by the sales of several properties in 1999
and 2000, and the transfer of several properties to real estate held for sale
(depreciation not taken on those properties in the category of "real estate held
for sale").
The increase in general and administrative expenses of $1,088,000 for the
year ended December 31, 2000 compared to 1999 is primarily due to compensation
expense of $782,000 in 2000 for the Company's recently granted restricted stock
awards. See Note 7 in the Notes to the Consolidated Financial Statements for
disclosure as to this plan.
In 2000, the Company recognized gains of $8,771,000 consisting of the sale
of two properties and one parcel of land and the recognition of a deferred gain.
In 1999, the Company recognized gains of $15,357,000 consisting primarily of the
sale of three properties, two parcels of land and a land purchase leaseback, a
write-down of one property, and the recognition of other deferred gains. See
Note 2 in the Notes to the Consolidated Financial Statements for details of
these gains.
NAREIT has recommended supplemental disclosures concerning capital
expenditures and leasing costs. Capital expenditures for the years ended
December 31, 2000 and 1999 by category are as follows:
Capital Expenditures
2000
-----------------------------------------
1999
Industrial Other Total Total
------------- ------------- -------------- ------------
(In thousands)
Upgrade on Acquisitions $ 2,754 - 2,754 3,060
Major Renovation 41 - 41 49
Tenant improvements:
New Tenants 3,054 - 3,054 3,076
New Tenants (first generation) 1,480 - 1,480 204
Renewal Tenants 901 - 901 493
Other 2,006 375 2,381 2,515
------------- ------------- -------------- ------------
Total capital expenditures $10,236 375 10,611 9,397
============= ============= ============== ============
The Company's leasing costs are capitalized and included in other assets.
The costs are amortized over the lives of the leases and are included in
depreciation and amortization expense. A summary of these costs for the years
ended December 31, 2000 and 1999 is as follows:
Capitalized Leasing Costs
2000
------------------------------------------------------------
Industrial 1999
Industrial Other Development Total Total
------------- ------------- ---------------- --------------- ---------
(In thousands)
Capitalized leasing costs:
New Tenants $1,091 - - 1,091 1,041
New Tenants (first generation) 158 - 1,730 1,888 1,217
Renewal Tenants 930 19 - 949 1,012
------------- ------------- ---------------- --------------- ---------
Total capitalized leasing costs $2,179 19 1,730 3,928 3,270
============= ============= ================ =============== ========
Amortization of leasing costs $2,034 1,538
=============== =========
1999 Compared to 1998
Net income available to common shareholders for 1999 was $32,229,000 ($2.01
per basic share and $1.99 per diluted share) compared to net income available to
common shareholders in 1998 of $27,266,000 ($1.67 per basic share and $1.66 per
diluted share). Income before gain on real estate investments was $23,416,000 in
1999 compared to $19,623,000 in 1998. Gain on real estate investments was
$15,357,000 in 1999 compared to $9,713,000 in 1998. Income before cumulative
effect of change in accounting principle was $38,773,000 in 1999 compared to
$29,336,000 in 1998. Cumulative effect of change in accounting principle was
$418,000 for 1999 and zero for 1998. The paragraphs that follow describe the
results of operations in greater detail.
PNOI from real estate properties, defined as income from real estate
operations less property operating expenses (before interest expense and
depreciation), increased by $8,395,000 or 15.27% for 1999, compared to 1998.
PNOI by property type and percentage leased for industrial were as follows:
Property Net Operating Income
PNOI
Years Ended Percent
December 31, Leased
----------------------------- -------------------------------
1999 1998 12-31-99 12-31-98
-------------- -------------- ---------------- --------------
(In thousands)
Industrial $59,954 47,003 97% 98%
Other 3,425 7,981
-------------- --------------
Total PNOI $63,379 54,984
============== ==============
PNOI from industrial properties increased $12,951,000 for 1999 compared to
1998 primarily due to acquisitions, rental rate increases and development
properties that achieved stabilized operations in 1998 and 1999. Industrial
properties held throughout 1999 and 1998 showed an increase in PNOI of 5.8% for
1999.
PNOI from other properties decreased $4,556,000 for 1999 compared to 1998
primarily due to the sales of the Columbia Place Office Building and four
apartment complexes in 1998 and the 8150 Leesburg Pike Office Building in July
1999.
Bank interest expense (excluding amortization of loan costs of $251,000 for
1999 and $375,000 for 1998) increased $175,000 from $6,668,000 in 1998 to
$6,843,000 in 1999. Average bank borrowings were $104,335,000 in 1999 compared
to $94,488,000 in 1998 with average interest rates of 6.56% in 1999 compared to
7.06% in 1998. Average bank borrowings increased primarily as a result of the
Meridian acquisition and the acquisition and development of industrial
properties. Bank interest rates at December 31, 1999 were 7.50% on $77,000,000,
7.44% on $8,000,000 and 7.75% on $10,000,000. The bank interest rate at December
31, 1998 was 6.96%. Interest costs incurred during the period of construction of
real estate properties are capitalized and offset against the bank interest
expense. The interest costs capitalized on real estate properties for 1999 were
$1,834,000 compared to $822,000 for 1998.
Interest expense on real estate properties (excluding amortization of loan
costs of $152,000 for 1999 and $146,000 for 1998) increased $1,695,000 from
$10,581,000 in 1998 to $12,276,000 in 1999, primarily as a result of mortgages
assumed in 1998 on two acquired properties and other mortgages assumed in the
Meridian VIII merger, and from the issuance of two mortgages in 1999. These
increases were offset by the payoffs of four mortgages in 1998 and five in 1999.
Depreciation and amortization increased $3,614,000 in 1999 compared to
1998. This increase was primarily due to the industrial properties acquired in
both 1998 and 1999 and development properties that achieved stabilized
operations in 1998 and 1999, offset by the sales of several properties in 1998
and 1999, and the transfer of several properties to real estate held for sale
(depreciation not taken on those properties in the category of "real estate held
for sale").
The increase in general and administrative expenses of $748,000 for the
year ended December 31, 1999 was primarily due to an increase in general and
administrative costs due to growth of the Company.
In 1999, the Company recognized gains of $15,357,000 consisting primarily
of the sale of three properties, two parcels of land and a land purchase
leaseback, a write-down of one property and the recognition of other deferred
gains. In 1998, the Company recognized gains of $9,713,000 consisting primarily
of the sale of eight properties and the recognition of other deferred gains. See
Note 2 in the Notes to the Consolidated Financial Statements for details of
these sales.
NAREIT has recommended supplemental disclosures concerning capital
expenditures and leasing costs. Capital expenditures for the years ended
December 31, 1999 and 1998 by category are as follows:
Capital Expenditures
1999
------------------------------------------
1998
Industrial Other Total Total
------------- ------------- -------------- ----------
(In thousands)
Upgrade on Acquisitions $3,060 - 3,060 2,720
Major Renovation 49 - 49 793
Tenant improvements:
New Tenants 2,802 274 3,076 2,100
New Tenants (first generation) 204 - 204 53
Renewal Tenants 484 9 493 1,307
Other 2,360 155 2,515 570
------------- ------------- -------------- ----------
Total capital expenditures $8,959 438 9,397 7,543
============= ============= ============== ==========
The Company's leasing costs are capitalized and included in other assets.
The costs are amortized over the lives of the leases and are included in
depreciation and amortization expense. A summary of these costs for the years
ended December 31, 1999 and 1998 is as follows:
Capitalized Leasing Costs
1999
------------------------------------------------------------
Industrial 1998
Industrial Other Development Total Total
------------- ------------- ---------------- --------------- -----------
(In thousands)
Capitalized leasing costs:
New Tenants $1,032 9 - 1,041 1,465
New Tenants (first generation) 80 - 1,137 1,217 246
Renewal Tenants 1,007 5 - 1,012 1,130
------------- ------------- ---------------- --------------- -----------
Total capitalized leasing costs $2,119 14 1,137 3,270 2,841
============= ============= ================ =============== ===========
Amortization of leasing costs $1,538 1,072
=============== ===========
NEW ACCOUNTING PRONOUNCEMENTS
Derivative Instruments and Hedging Activities
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," was issued in June 1998 and, as
amended, is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. The statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. All derivatives
are required to be recognized as either assets or liabilities in the statement
of financial position and measured at fair value. Changes in fair value will be
reported either in earnings or outside of earnings depending on the intended use
of the derivative and the resulting designation. Entities applying hedge
accounting are required to establish at the inception of the hedge the method
used to assess the effectiveness of the hedging derivative and the measurement
approach for determining the ineffective aspect of the hedge. The Company has
evaluated the effect of adopting this statement and believes the effect of
adoption would have no impact to its financial position or results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $53,016,000 for the year
ended December 31, 2000. Other sources of cash were primarily from collections
on mortgage loan receivables, sales of real estate investments, liquidating
distributions from REIT shares, bank borrowings, proceeds from two new mortgage
notes and proceeds from exercise of stock options. The Company distributed
$24,702,000 in common and $10,008,000 in preferred stock dividends. Other
primary uses of cash were for advances on mortgage loan receivables, capital
improvements at the various properties, construction and development of
properties, purchases of real estate investments, purchase of REIT shares, bank
debt payments and mortgage note payments. Total debt at December 31, 2000 and
1999 was as follows:
Years Ended December 31,
----------------------------------
2000 1999
---------------- -----------------
(In thousands)
Mortgage notes payable - fixed rate $168,709 148,665
Bank notes payable - floating rate 102,000 95,000
----------------------------------
Total debt $270,709 243,665
==================================
The Company has a three-year $150,000,000 unsecured revolving credit
facility with a group of ten banks that matures in January 2002. The interest
rate is based on the Eurodollar rate plus 1.25% and was 8.00% on $92,000,000 at
December 31, 2000. An unused facility fee of .25% is also assessed on this note.
In January 2001, the Company fixed a 6.75% interest rate for six months on $25
million of existing debt under this line. The remaining bank debt under this
line has a 30-day rate which was 6.84% on $67,000,000 at March 9, 2001.
EastGroup has a one-year $10,000,000 unsecured revolving credit facility
with Chase Bank of Texas that matured in January 2001. The loan was amended in
January 2001 to reflect a new maturity date of January 2002. The interest rate
is based on Chase Bank of Texas, National Association's prime rate less .75% and
was 8.75% on a $10,000,000 balance at December 31, 2000. At March 9, 2001, the
rate was 7.75% on $2,877,000.
The Company has a $15,000,000 unsecured discretionary line of credit with
Chase Bank of Texas. The interest rate and maturity date for each loan proceeds
are determined at the time of any advances by the Company and Chase. At December
31, 2000, the outstanding balance for this loan was zero. At March 9, 2001, the
rate was 6.75% on $15,000,000.
In January 2001, EastGroup executed an application with Metropolitan Life
Insurance Company for a $45 million nonrecourse mortgage loan with an interest
rate of 7.25%, a 25-year amortization and a 10-year maturity. This loan will be
secured by eight properties in Dallas, Houston and El Paso and is expected to
close in March.
EastGroup's only debt maturing in 2001 was a $3.8 million mortgage due in
March 2001. The Company repaid this note upon maturity by using bank debt.
EastGroup's Board of Directors has authorized the repurchase of up to
1,500,000 shares of its outstanding common stock. The shares may be purchased
from time to time in the open market or in privately negotiated transactions.
Since September 30, 1998, a total of 827,700 shares have been repurchased for
$14,170,000 (an average of $17.12 per share).
On June 20, 2000, Pacific Gulf Properties announced that it had entered
into an agreement to sell all of its industrial properties and is marketing its
multi-family assets with the disposition of its senior housing assets to be
determined at a future date. EastGroup owns 487,100 shares of PAG. In December
2000, upon receipt of the initial liquidating distribution of $22.00 per share
from PAG, the Company reduced its basis in PAG shares to zero and recorded a
gain of $807,000. Based on publicly available estimates prepared by analysts who
follow PAG, management estimates that the Company will receive an additional
$6.40 per share in 2001 from PAG's distributions of cash as it sells its
remaining assets.
Subsequent to December 31, 2000, EastGroup purchased World Houston 10
(107,000 square feet) for $5,712,000. The purchase was funded with cash escrows
from tax deferred exchange transactions. As part of this transaction, the seller
repaid $4,682,000 to the Company on the outstanding mortgage loan receivable and
accrued interest for the World Houston 10 note.
Budgeted capital improvements for the year ending December 31, 2001 follow:
Capital Improvements
Industrial Other Total
------------- ----------- -----------
(In thousands)
Upgrades on Acquisitions $ 500 - 500
Tenant Improvements:
New Tenants 4,167 - 4,167
Renewal Tenants 1,051 - 1,051
Other 1,617 15 1,632
------------------------------------
Total budgeted capital improvements $7,335 15 7,350
====================================
Budgeted industrial development costs are estimated to be $36,000,000 for
the year.
The Company anticipates that its current cash balance, operating cash
flows, and borrowings under the lines of credit will be adequate for the
Company's (i) operating and administrative expenses, (ii) normal repair and
maintenance expenses at its properties, (iii) debt service obligations, (iv)
distributions to stockholders, (v) capital improvements, (vi) purchases of
properties, (vii) development, and (viii) common stock repurchases.
INFLATION
In the last five years, inflation has not had a significant impact on the
Company because of the relatively low inflation rate in the Company's geographic
areas of operation. Most of the leases require the tenants to pay their pro rata
share of operating expenses, including common area maintenance, real estate
taxes and insurance, thereby reducing the Company's exposure to increases in
operating expenses resulting from inflation. In addition, the Company's leases
typically have three to five year terms, which may enable the Company to replace
existing leases with new leases at a higher base if rents on the existing leases
are below the then-existing market rate.
Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to interest rate changes primarily as a result of
its lines of credit and long-term debt maturities. This debt is used to maintain
liquidity and fund capital expenditures and expansion of the Company's real
estate investment portfolio and operations. The Company's interest rate risk
management objective is to limit the impact of interest rate changes on earnings
and cash flows and to lower its overall borrowing costs. To achieve its
objectives, the Company borrows at fixed rates but also has several variable
rate bank lines as discussed under Liquidity and Capital Resources. The table
below presents the principal payments due and weighted average interest rates
for both the fixed rate and variable rate debt.
Fair
2001 2002 2003 2004 2005 Thereafter Total Value
----------- ---------- --------- -------- --------- ------------- ---------- ----------
Fixed rate debt (in thousands) $7,920 12,452 8,248 8,993 22,756 108,340 168,709 175,729
Weighted average interest rate 7.76% 7.59% 8.31% 8.19% 8.10% 7.56% 7.72%
Variable rate debt (in thousands) $10,000 92,000 - - - - 102,000 102,000
Weighted average interest rate 8.75% 8.00% - - - - 8.07%
As the table above incorporates only those exposures that exist as of
December 31, 2000, it does not consider those exposures or positions that could
arise after that date. The Company's ultimate economic impact with respect to
interest rate fluctuations will depend on the exposures that arise during the
period and interest rates.
Forward Looking Statements
In addition to historical information, certain sections of this Form 10-K
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
such as those pertaining to the Company's hopes, expectations, intentions,
beliefs, strategies regarding the future, the anticipated performance of
development and acquisition properties, capital resources, profitability and
portfolio performance. Forward-looking statements involve numerous risks and
uncertainties. The following factors, among others discussed herein, could cause
actual results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or non-renewal of
leases, increased interest rates and operating costs, failure to obtain
necessary outside financing, difficulties in identifying properties to acquire
and in effecting acquisitions, failure to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended, environmental
uncertainties, risks related to natural disasters, financial market
fluctuations, changes in real estate and zoning laws and increases in real
property tax rates. The success of the Company also depends upon the trends of
the economy, including interest rates, income tax laws, governmental regulation,
legislation, population changes and those risk factors discussed elsewhere in
this Form 10-K. Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect management's analysis only as the date
hereof. The Company assumes no obligation to update forward-looking statements.
See also the Company's reports to be filed from time to time with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant's Consolidated Balance Sheets as of December 31, 2000 and
1999, and its Consolidated Statements of Income, Changes in Stockholders' Equity
and Cash Flows and Notes to Consolidated Financial Statements for the years
ended December 31, 2000, 1999 and 1998 and the independent auditors' report
thereon are included under Item 14 of this report and are incorporated herein by
reference. Unaudited quarterly results of operations included in the notes to
the consolidated financial statements are also incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant's definitive proxy statement which will be filed with the
Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A
within 120 days of the end of Registrant's calendar year is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The Registrant's definitive proxy statement which will be filed with the
Commission pursuant to Regulation 14A within 120 days of the end of Registrant's
calendar year is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN COMMON STOCK OWNERS AND MANAGEMENT.
The Registrant's definitive proxy statement which will be filed with the
Commission pursuant to Regulation 14A within 120 days of the end of Registrant's
calendar year is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant's definitive proxy statement which will be filed with the
Commission pursuant to Regulation 14A within 120 days of the end of Registrant's
calendar year is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Index to Financial Statements:
Page
(a) (1) Consolidated Financial Statements:
Independent Auditors' Report 16
Consolidated Balance Sheets - December 31, 2000 and 1999 16
Consolidated Statements of Income - Years ended December
31, 2000, 1999 and 1998 17
Consolidated Statements of Changes in Stockholders' Equity-
Years ended December 31, 2000, 1999 and 1998 18
Consolidated Statements of Cash Flows - Years ended December
31, 2000, 1999 and 1998 19
Notes to Consolidated Financial Statements 20
(2) Consolidated Financial Statement Schedules:
Schedule III - Real Estate Properties and Accumulated Depreciation 34
Schedule IV - Mortgage Loans on Real Estate 39
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted, or the required information is included in the notes to the
consolidated financial statements.
(3) Form 10-K Exhibits:
(a) Articles of Incorporation (incorporated by reference to
Appendix B to the Registrant's Proxy Statement dated
April 24, 1997).
(b) Bylaws of the Registrant (incorporated by reference to
Appendix C to the Registrant's Proxy Statement dated
April 24, 1997).
(c) Articles Supplementary of the Company relating to the
9.00% Series A Cumulative Redeemable Preferred Stock of
the Company (incorporated by reference to the Company's
Form 8-A filed June 15, 1998).
(d) Articles Supplementary of the Company relating to the
Series B Cumulative Convertible Preferred Stock
(incorporated by reference to the Company's Form 8-K
filed on October 1, 1998).
(e) Articles Supplementary of the Company relating to the
Series C Preferred Stock (incorporated by reference to
the Company's Form 8-A filed December 9, 1998).
(f) Certificate of Correction to Articles Supplementary
with respect to Series B Cumulative Convertible
Preferred Stock (incorporated by reference to the
Registrant's Form 10-K for the year ended December 31,
1998).
(10) Material Contracts:
(a) EastGroup Properties 1994 Management Incentive Plan, As
Amended (incorporated by reference to Appendix A of the
Registrant's Proxy Statement for its Annual Meeting of
Shareholders held on June 2, 1999).
(b) EastGroup Properties 1991 Directors Stock Option Plan,
As Amended (incorporated by reference to Exhibit B of
the Registrant's proxy statement dated April 26,
1994).*
(c) Form of Change in Control Agreement that Registrant has
entered into with certain executive officers (Leland R.
Speed, David H. Hoster II and N. Keith McKey)
(incorporated by reference to the Registrant's 1996
Annual Report on Form 10-K).*
(d) Investment Agreement dated as of September 25, 1998
between the Company and Five Arrows Realty Securities
II, L.L.C. (incorporated by reference to the Company's
Form 8-K filed October 1, 1998).
(e) Operating Agreement dated September 25, 1998 between
the Company and Five Arrows Realty Securities II,
L.L.C. (incorporated by reference to the Company's Form
8-K filed October 1, 1998).
(f) Agreement and Waiver between the Company and Five
Arrows Realty Securities II, L.L.C. (incorporated by
reference to the Company's Form 8-K filed October 1,
1998).
(g) Credit Agreement dated January 13, 1999 among EastGroup
Properties, L.P.; EastGroup Properties, Inc.; Chase
Bank of Texas, National Association, as Arranger,
Book Manager and Administrative Agent; First Union
National Bank, as Syndication Agent; PNC Bank,
National Association, as Documentation Agent;
AmSouth Bank (successor to Deposit Guaranty National
Bank), as Co-Agent; and the Lenders (incorporated by
reference to the Registrant's Form 10-K for the year
ended December 31, 1998).
(21) Subsidiaries of Registrant (filed herewith).
(23) Consent of KPMG LLP (filed herewith).
(24) Powers of attorney (filed herewith).
(28) Agreement of Registrant to furnish the Commission with copies
of instruments defining the rights of holders of long-term
debt (incorporated by reference to Exhibit 28(e) of the
Registrant's 1986 Annual Report on Form 10-K).
(99) Rights Agreement dated as of December 3, 1998 between the
Company and Harris Trust and Savings Bank, as Rights Agent
(incorporated by reference to the Company's Form 8-A filed
December 9, 1998).
(b) None
*Indicates management or compensatory agreement.
INDEPENDENT AUDITORS' REPORT
THE DIRECTORS AND STOCKHOLDERS
EASTGROUP PROPERTIES, INC.:
We have audited the consolidated financial statements of EastGroup
Properties, Inc. and subsidiaries, as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EastGroup
Properties, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
Jackson, Mississippi KPMG LLP
March 2, 2001
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
December 31, 2000 December 31, 1999
-------------------------------------------------------
ASSETS
Real estate properties:
Industrial $ 630,860 580,598
Industrial development 37,193 35,480
Other - 6,919
----------------------------------------------------------
668,053 622,997
Less accumulated depreciation (66,492) (46,829)
----------------------------------------------------------
601,561 576,168
----------------------------------------------------------
Real estate held for sale 26,602 18,051
Less accumulated depreciation (3,628) (4,750)
-----------------------------------------------------------
22,974 13,301
-----------------------------------------------------------
Mortgage loans 9,191 8,706
Investment in real estate investment trusts 8,068 15,708
Cash 2,861 2,657
Other assets 21,550 15,611
-----------------------------------------------------------
TOTAL ASSETS $ 666,205 632,151
===========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage notes payable $ 168,709 148,665
Notes payable to banks 102,000 95,000
Accounts payable & accrued expenses 13,792 12,170
Other liabilities 4,615 4,664
------------------------------------------------------------
289,116 260,499
------------------------------------------------------------
Minority interest in joint ventures 1,697 1,690
Minority interest in operating partnership - 650
--------------------------------------=---------------------
1,697 2,340
------------------------------------------------------------
STOCKHOLDERS' EQUITY
Series A 9.00% Cumulative Redeemable Preferred Shares and
additional paid-in capital; $.0001 par value; 1,725,000
shares authorized and issued; stated liquidation
preference of $43,125 41,357 41,357
Series B 8.75% Cumulative Convertible Preferred Shares
and additional paid-in capital; $.0001 par value; 2,800,000
shares authorized and issued; stated liquidation
preference of $70,000 67,178 67,178
Series C Preferred Shares; $.0001 par value; 600,000 shares
authorized; no shares issued - -
Common shares; $.0001 par value; 64,875,000 shares authorized;
15,849,318 shares issued at December 31, 2000 and
15,555,505 at December 31, 1999 2 2
Excess shares; $.0001 par value; 30,000,000 shares authorized;
no shares issued - -
Additional paid-in capital on common shares 238,910 233,453
Undistributed earnings 28,185 26,654
Accumulated other comprehensive income 3,104 668
Unearned compensation (3,344) -
-------------------------------------------------------------
375,392 369,312
-------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 666,205 632,151
=============================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31,
------------------------------------------------------
2000 1999 1998
------------------------------------------------------
REVENUES
Income from real estate operations $ 93,906 83,320 74,312
Interest:
Mortgage loans 839 1,123 1,704
Other interest 136 244 164
Gain on securities 2,154 30 -
Other 1,068 1,519 548
------------------------------------------------------
98,103 86,236 76,728
------------------------------------------------------
EXPENSES
Operating expenses from real estate operations 22,359 19,941 19,328
Interest 18,570 17,688 16,948
Depreciation and amortization 23,449 20,239 16,625
General and administrative 5,607 4,519 3,771
------------------------------------------------------
69,985 62,387 56,672
------------------------------------------------------
INCOME BEFORE MINORITY INTEREST AND
GAIN ON REAL ESTATE INVESTMENTS 28,118 23,849 20,056
Minority interest in joint ventures 377 433 433
------------------------------------------------------
INCOME BEFORE GAIN ON
REAL ESTATE INVESTMENTS 27,741 23,416 19,623
Gain on real estate investments 8,771 15,357 9,713
------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 36,512 38,773 29,336
Cumulative effect of change in accounting principle - 418 -
------------------------------------------------------
NET INCOME 36,512 38,355 29,336
Preferred dividends-Series A 3,880 3,880 2,070
Preferred dividends-Series B 6,128 2,246 -
------------------------------------------------------
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS $ 26,504 32,229 27,266
======================================================
BASIC PER SHARE DATA
Net income available to common shareholders $ 1.70 2.01 1.67
======================================================
Weighted average shares outstanding 15,623 16,046 16,283
======================================================
DILUTED PER SHARE DATA
Net income available to common shareholders $ 1.68 1.99 1.66
======================================================
Weighted average shares outstanding 15,798 17,362 16,432
======================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
Accumulated
Additional Other
Preferred Common Paid-In Unearned Undistributed Comprehensive
Stock Stock Capital Compensation Earnings Income Total
----------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $ - 2 244,215 - 13,633 (535) 257,315
Comprehensive income
Net income - - - - 29,336 - 29,336
Net unrealized change in investment
securities - - - - - 1,142 1,142
Total comprehensive income ---------
30,478
---------
Cash dividends declared-common, $1.40 per share - - - - (22,823) - (22,823)
Preferred stock dividends declared - - - - (2,070) - (2,070)
Issuance of 5,007 shares of common stock,
incentive compensation - - 102 - - - 102
Issuance of 15,238 shares of common stock,
dividend reinvestment plan - - 296 - - - 296
Issuance of 29,685 shares of common
stock, exercise options - - 415 - - - 415
Issuance of 79,353 shares of common
stock, Ensign merger - - 1,746 - - - 1,746
Issuance of 1,725,000 shares of
Series A preferred 41,357 - - - - - 41,357
Issuance of 400,000 shares of
Series B preferred 9,642 - - - - - 9,642
Purchase of 5,025 common shares - - (75) - - - (75)
Purchase of 21,100 common shares,
stock repurchase plan - - (359) - - - (359)
------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 50,999 2 246,340 - 18,076 607 316,024
Comprehensive income
Net income - - - - 38,355 - 38,355
Net unrealized change in investment
securities - - - - - 61 61
---------
Total comprehensive income 38,416
---------
Cash dividends declared-common,
$1.48 per share - - - - (23,651) - (23,651)
Preferred stock dividends declared - - - - (6,126) - (6,126)
Issuance of 8,009 shares of common stock,
incentive compensation - - 156 - - - 156
Issuance of 16,275 shares of common stock,
dividend reinvestment plan - - 295 - - - 295
Issuance of 22,210 shares of common stock,
exercise options - - 317 - - - 317
Issuance of 2,400,000 shares of
Series B preferred 57,536 - - - - - 57,536
Purchase of 2,070 common shares - - (34) - - - (34)
Purchase of 796,600 common shares,
stock repurchase plan - - (13,621) - - - (13,621)
------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 108,535 2 233,453 - 26,654 668 369,312
Comprehensive income
Net income - - - - 36,512 - 36,512
Net unrealized change in
investment securities - - - - - 2,436 2,436
--------
Total comprehensive income 38,948
--------
Cash dividends declared-common, $1.58 per share - - - - (24,973) - (24,973)
Preferred stock dividends declared - - - - (10,008) - (10,008)
Issuance of 9,638 shares of common stock,
incentive compensation - - 174 - - - 174
Issuance of 14,175 shares of common stock,
dividend reinvestment plan - - 312 - - - 312
Issuance of 122,250 shares of common stock,
exercise options - - 1,957 - - - 1,957
Issuance of 181,250 shares of common stock,
incentive restricted stock - - 3,716 (3,716) - - -
Amortization of unearned compensation,
incentive restricted stock - - - 372 - - 372
Repurchase limited partnership units - - (55) - - - (55)
Purchase of 23,500 common shares - - (457) - - - (457)
Purchase of 10,000 common shares,
stock repurchase plan - - (190) - - - (190)
-------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 $ 108,535 2 238,910 (3,344) 28,185 3,104 375,392
=====================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Years Ended December 31,
-------------------------------------------------
2000 1999 1998
-------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 36,512 38,355 29,336
Adjustments to reconcile net income to net cash provided by operating
activities:
Cumulative effect of change in accounting principle - 418 -
Depreciation and amortization 23,449 20,239 16,625
Gain on real estate investments, net (8,771) (15,357) (9,713)
Gain on real estate investment trust shares (2,154) (30) -
Amortization of unearned compensation 372 - -
Minority interest depreciation and amortization (158) (241) (324)
Changes in operating assets and liabilities:
Accrued income and other assets (568) 786 (6,106)
Accounts payable, accrued expenses and prepaid rent 4,334 66 6,387
-------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 53,016 44,236 36,205
-------------------------------------------------
INVESTING ACTIVITIES:
Payments on mortgage loans receivable, net of amortization of loan discounts 4,124 9,809 2,421
Advances on mortgage loans receivable (4,609) (8,186) -
Proceeds from sale of real estate investments 17,170 51,090 31,215
Real estate improvements (10,611) (9,397) (7,543)
Real estate development (40,661) (45,846) (25,511)
Purchases of real estate (13,628) (56,569) (73,980)
Acquisition of Meridian - - (52,760)
Purchases of real estate investment trust shares (4,964) (10,172) (1,832)
Proceeds from real estate investment trust shares 17,334 292 -
Merger expenses - - (1,614)
Changes in other assets and other liabilities (7,302) 660 (7,271)
Cash balances of acquired companies - - 6,118
-------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (43,147) (68,319) (130,757)
-------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from bank borrowings 182,519 297,226 202,560
Debt issuance costs (316) (902) (183)
Proceeds from mortgage notes payable 37,800 47,000 2,200
Principal payments on bank borrowings (175,519) (316,548) (130,008)
Principal payments on mortgage notes payable (17,756) (21,932) (6,270)
Distributions paid to shareholders (34,710) (28,245) (24,073)
Purchases of limited partnership units (705) - -
Purchases of shares of common stock (647) (13,655) (434)
Proceeds from exercise of stock options 1,957 317 415
Net proceeds from issuance of shares of preferred stock - 57,536 50,999
Proceeds from dividend reinvestment plan 312 295 296
Other (2,600) 2,864 536
-------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (9,665) 23,956 96,038
-------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 204 (127) 1,486
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,657 2,784 1,298
-------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,861 2,657 2,784
=================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest, net of amount capitalized $17,919 17,236 15,505
Debt assumed by the Company in purchase of real estate - 1,103 7,167
Operating partnership units issued in purchase of real estate - - 650
Debt assumed by the Company in the Meridian acquisition - - 33,422
Debt assumed by buyer of real estate - - 19,405
Issuance of common stock to acquire Ensign - - 1,746
Issuance of incentive restricted stock 3,716 - -
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
(1) Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of EastGroup
Properties, Inc. (the Company or EastGroup), its wholly-owned subsidiaries and
its investment in any joint ventures. At December 31, 2000 and 1999, the Company
had two joint ventures: the 80% owned University Business Center and the 80%
owned IBG Wiegman Road Associates. At December 31, 1998, the Company had four
joint ventures: the 75% owned 56th Street Commerce Park, the 75% owned JetPort
Commerce Park, the 80% owned University Business Center, and the 80% owned IBG
Wiegman Road Associates. The Company records 100% of the joint ventures' assets,
liabilities, revenues and expenses with minority interests provided for in
accordance with the joint venture agreements. All significant intercompany
transactions and accounts have been eliminated in consolidation.
(b) Federal Income Taxes
EastGroup, a Maryland corporation, has qualified as a real estate
investment trust under Sections 856-860 of the Internal Revenue Code and intends
to continue to qualify as such. The Company distributed all of its 2000, 1999
and 1998 taxable income to its stockholders. Accordingly, no provision for
federal income taxes was necessary. Distributions paid per common share for
federal income tax purposes were:
Years Ended December 31,
--------------------------------------------
2000 1999 1998
--------------------------------------------
Ordinary Income $1.58 1.48 1.36
Long-term 20% Capital Gain - - .04
--------------------------------------------
$1.58 1.48 1.40
============================================
Distributions paid per share of Series A Preferred for federal income tax
purposes for the years ended December 31, 2000, 1999, and 1998 were $2.25,
$2.25, and $.725, respectively, paid as ordinary income with no return of
capital.
Distributions paid per share of Series B Convertible Preferred for federal
income tax purposes for the years ended December 31, 2000 and 1999 were $2.188
and $1.641, paid as ordinary income with no return of capital. No dividends were
paid in 1998 on the Series B Preferred.
The Company's income differs for tax and financial reporting purposes
principally because of (1) the timing of the deduction for the provision for
possible losses and losses on investments, (2) the timing of the recognition of
gains or losses from the sale of investments, (3) different depreciation methods
and lives, and (4) mortgage loans having a different basis for tax and financial
reporting purposes, thereby producing different gains upon collection of these
loans.
(c) Income Recognition
Rental income from real estate operations is recognized on a straight-line
basis.
Interest income on mortgage loans is recognized based on the accrual method
unless a significant uncertainty of collection exists. If a significant
uncertainty exists, interest income is recognized as collected. Certain mortgage
loan discounts are amortized over the lives of the loans using a method that
does not differ materially from the interest method.
The Company recognizes gains on sales of real estate in accordance with the
principles set forth in Statement of Financial Accounting Standards No. 66 (SFAS
66), "Accounting for Sales of Real Estate." Upon closing of real estate
transactions, the provisions of SFAS 66 require consideration for the transfer
of rights of ownership to the purchaser, receipt of an adequate cash down
payment from the purchaser and adequate continuing investment by the purchaser.
If the requirements for recognizing gains have not been met, the sale and
related costs are recorded, but the gain is deferred and recognized by the
installment method as collections are received.
(d) Real Estate Properties
Real estate properties are carried at cost less accumulated depreciation.
Cost includes the carrying amount of the Company's investment plus any
additional consideration paid, liabilities assumed, costs of securing title (not
to exceed fair market value in the aggregate) and improvements made subsequent
to acquisition. Depreciation of buildings and other improvements, including
personal property, is computed using the straight-line method over estimated
useful lives of 25 to 40 years for buildings and 3 to 10 years for other
improvements and personal property. Building improvements are capitalized, while
maintenance and repair expenses are charged to expense as incurred. Significant
renovations and improvements that extend the useful life of or improve the
assets are capitalized. Geographically, the Company's investments are
concentrated in the major sunbelt market areas of the southeastern and
southwestern United States, primarily in the states of California, Florida,
Texas and Arizona.
(e) Real Estate Held for Sale
Real estate properties that are currently offered for sale or are under
contract to sell have been shown separately on the consolidated balance sheets
as "real estate held for sale." Such assets are carried at the lower of current
carrying amount or fair market value less estimated selling costs and are not
depreciated while they are held for sale.
(f) Investment in Real Estate Investment Trusts
Marketable equity securities owned by the Company are categorized as
available-for-sale securities, as defined by SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Unrealized holding gains and
losses are reflected as a net amount in a separate component of stockholders'
equity until realized. Since the Company did not exercise significant influence
over its investment in REITs, these investments were accounted for under the
cost method. The costs of these investments were adjusted to fair market value
with an equity adjustment to account for unrealized gains/losses as indicated
above.
(g) Allowance for Possible Losses and Impairment Losses
The Company measures impaired and restructured loans at the present value
of expected future cash flows, discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's market price or the fair value of
collateral if the loan is collateral dependent.
The Company applies SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by the Company be reviewed for impairment of value whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. This statement requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less selling costs.
(h) Amortization
Debt origination costs are deferred and amortized using the straight-line
method over the term of the loan. Leasing commissions are deferred and amortized
using the straight-line method over the term of the lease.
(i) Goodwill
In March 1998, EastGroup acquired Ensign Properties, Inc., the largest
independent industrial developer in Orlando. A portion of the total acquisition
price for Ensign included goodwill, which represents the excess of the purchase
price and related costs over the fair value assigned to the net tangible assets.
The Company amortizes goodwill on a straight-line basis over 20 years. The
Company will periodically review the recoverability of goodwill. The measurement
of possible impairment is based primarily on the ability to recover the balance
of the unamortized basis. In management's opinion, no material impairment
existed at December 31, 2000, 1999, and 1998. Amortization expense for goodwill
was $61,000 in 2000 and 1999 and $51,000 in 1998.
(j) Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
(k) Reclassifications
Certain reclassifications have been made in the 1999 and 1998 financial
statements to conform to the 2000 presentation.
(l) Earnings Per Share
The Company applies SFAS No. 128 "Earnings Per Share," which requires
companies to present basic earnings per share (EPS) and diluted EPS.
Basic EPS represents the amount of earnings for the year available to each
share of common stock outstanding during the reporting period. The Company's
basic EPS is calculated by dividing net income available to common shareholders
by the weighted average number of common shares outstanding.
Diluted EPS represents the amount of earnings for the year available to
each share of common stock outstanding during the period and to each share that
would have been outstanding assuming the issuance of common shares for all
dilutive potential common shares outstanding during the reporting period. The
Company's diluted EPS is calculated by totaling net income available to common
shareholders plus dividends on dilutive convertible preferred shares and limited
partnership (LP) dividends and dividing it by the weighted average number of
common shares outstanding plus the dilutive effect of stock options related to
outstanding employee stock options, LP units, nonvested restricted stock and
convertible preferred stock, had the options or conversions been exercised. The
dilutive effect of stock options and nonvested restricted stock was determined
using the treasury stock method which assumes exercise of the options as of the
beginning of the period or when issued, if later, and assuming proceeds from the
exercise of options are used to purchase common stock at the average market
price during the period. The treasury stock method was also used assuming
conversion of the convertible preferred stock.
(m) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and revenues and expenses during the reporting period,
and to disclose material contingent assets and liabilities at the date of the
financial statements. Actual results could differ from those estimates.
(n) Stock Based Compensation
The Company applies SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard defines a fair value based method of accounting for
an employee stock option or similar equity instrument. Companies are given the
choice of either recognizing related compensation cost by adopting the fair
value method, or to continue to use the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock
Issued to Employees," while supplementally disclosing the pro forma effect on
net income and net income per share using the new measurement criteria. The
Company elected to continue to follow the requirements of APB No. 25, and
accordingly, there was no effect on the results of operations.
The Company also accounts for restricted stock in accordance with APB No.
25, and accordingly, compensation expense is recognized over the expected
vesting period using the straight-line method.
(o) Capitalized Development Costs
During the industrial development stage, costs associated with development
(i.e., land, construction costs, interest expense during construction, property
taxes, etc.) are aggregated into the total capitalization of the property. As
the property becomes occupied, interest, depreciation and property taxes for the
percentage occupied only is expensed as incurred. When the property becomes 80%
occupied or one year after completion of the construction, whichever comes
first, the property is no longer considered a development property and becomes
an industrial property. When the property becomes classified as an industrial
property, the entire property is depreciated accordingly, and interest and
property taxes are expensed.
(2) Real Estate Owned
At December 31, 2000, the Company is offering for sale the Nobel Business
Center in Hercules, California with a carrying amount of $2,393,000; the 109th
Street Warehouse in Dallas, Texas with a carrying amount of $976,000; the LA
Corporate Center in Los Angeles, California with a carrying amount of
$6,334,000; the Ethan Allen Distribution Center in Los Angeles, California with
a carrying amount of $11,934,000; the Delp Distribution Center III in Memphis,
Tennessee with a carrying amount of $647,000; and 4.46 acres of land in the
World Houston Business Park with a carrying amount of $690,000. No loss is
anticipated on the sale of these properties. The results of operations for real
estate held for sale at December 31, 2000, amounted to $1,820,000, $1,586,000,
and $1,314,000, respectively, for the years ended December 31, 2000, 1999, and
1998. The results of operations for real estate held for sale at December 31,
1999, amounted to $258,000 and $293,000, respectively, for the years ended
December 31, 1999 and 1998.
The Company is currently developing the properties detailed below. Costs
incurred include capitalization of interest costs during the period of
construction. The interest costs capitalized on real estate properties for 2000
was $2,060,000, compared to $1,834,000 for 1999 and $822,000 for 1998.
Industrial Development
Costs Incurred
---------------------------------------
Size at For the 12 Months Cumulative as Estimated
Completion Ended 12/31/00 of 12/31/00 Total Costs
(Unaudited) (Unaudited)
- ----------------------------------------- ----------------- ---------------------------------------------------------
(Square feet) (In thousands)
Lease-Up:
Glenmont II
Houston, Texas 104,000 $ 2,448 2,916 3,780
Palm River North I & III
Tampa, Florida 116,000 3,362 4,928 6,290
Westlake II
Tampa, Florida 70,000 3,343 3,343 4,270
Sunport I
Orlando, Florida 56,000 1,851 3,122 3,200
Beach Commerce Center
Jacksonville, Florida 46,000 2,029 2,029 2,800
World Houston 11
Houston, Texas 126,000 3,135 3,721 5,460
Interstate Commons II
Phoenix, Arizona 59,000 1,889 2,209 2,900
----------------- --------------------- ----------------- -----------------
Total Lease-up 577,000 18,057 22,268 28,700
----------------- --------------------- ----------------- -----------------
Under Construction:
Techway Southwest I
Houston, Texas 126,000 1,888 1,888 5,040
Kyrene II
Tempe, Arizona 60,000 1,169 1,809 3,710
Walden Distribution Center I
Tampa, Florida 90,000 442 779 4,240
Sunport Center II
Orlando, Florida 60,000 762 762 3,500
----------------- --------------------- ----------------- -----------------
Total Under Construction 336,000 4,261 5,238 16,490
----------------- --------------------- ----------------- -----------------
Prospective Development:
Phoenix, Arizona 40,000 237 237 2,000
Tucson, Arizona 70,000 299 299 3,500
Tampa, Florida 230,000 1,351 1,835 9,200
Orlando, Florida 339,000 1,723 1,723 18,900
Houston, Texas 1,017,000 5,593 5,593 45,300
----------------- --------------------- ----------------- -----------------
Total Prospective Development 1,696,000 9,203 9,687 78,900
----------------- --------------------- ----------------- -----------------
2,609,000 $31,521 37,193 124,090
================= ===================== ================= =================
Development Transferred to
Industrial Properties During Twelve
Months Ended December 31, 2000:
John Young II
Orlando, Florida 47,000 $1,563 4,125
Rampart Distribution Center III
Denver, Colorado 92,000 982 5,736
Sample 95 II
Pompano, Florida 70,000 556 4,057
Chestnut Business Center
City of Industry, California 75,000 785 5,139
Palm River North II
Tampa, Florida 96,000 1,996 5,142
Westlake I
Tampa, Florida 70,000 534 4,836
Glenmont I
Houston, Texas 108,000 998 4,204
Main Street
Carson, California 106,000 1,726 5,709
----------------- --------------------- -----------------
Total Transferred to Industrial 664,000 $9,140 38,948
================= ===================== =================
A summary of gains (losses) on real estate investments for the years ended
December 31, 2000, 1999 and 1998 follows:
Gains (Losses) on Real Estate Investments
Net Recognized
Basis Sales Price Gain (Loss)
------------------------------------------------------
(In thousands)
2000
Real estate properties:
LeTourneau Center of Commerce $ 1,592 1,593 1
8150 Leesburg Pike-deferred gain (94) - 94
La Vista Crossing Apartments 6,472 14,528 8,056
Estelle land 429 1,049 620
------------------------------------------------------
$ 8,399 17,170 8,771
======================================================
1999
Real estate properties:
8150 Leesburg Pike Office Building $ 13,917 28,082 14,165
2020 Exchange 867 997 130
Waldenbooks 21,360 21,077 (283)
West Palm write-down 448 - (448)
Mortgage loans:
Country Club-deferred gain (1,127) - 1,127
Gainesville-deferred gain (388) - 388
Country Club land purchase-leaseback 500 500 -
Estelle land 137 367 230
LNH land 19 137 118
Other - (70) (70)
------------------------------------------------------
$ 35,733 51,090 15,357
======================================================
1998
Real estate properties:
Hampton House Apartments $ 5,977 6,611 634
Sutton House Apartments 7,696 9,448 1,752
Doral Club Apartments 5,900 9,046 3,146
Grande Pointe Apartments 5,857 7,104 1,247
401 Exchange Distribution Center 621 666 45
East Maricopa Distribution Center 625 625 -
Columbia Place Office Building 11,524 13,913 2,389
Park Ridge Distribution Center 3,154 3,154 -
LNH Land 9 53 44
Jacksonville-deferred gain (383) - 383
Other (73) - 73
------------------------------------------------------
$40,907 50,620 9,713
======================================================
The following schedule indicates approximate future minimum rental receipts
under noncancelable leases for the real estate properties by year as of December
31, 2000 (in thousands):
Future Minimum Rental Receipts Under Noncancelable Leases
Years Ended December 31,
-------------------------
2001 $73,110
2002 60,848
2003 47,562
2004 31,853
2005 20,920
Thereafter 51,176
----------------
Total minimum receipts $285,469
================
Ground Leases
As of December 31, 2000, the Company owned two properties in Florida and
two properties in Texas that are subject to ground leases. These leases have
terms of 40 to 50 years, expiration dates of August 2031 to November 2037, and
renewal options of 15 to 35 years. Total lease expense amounts for the years
ended December 31, 2000, 1999 and 1998 were $567,000, $511,000 and $490,000,
respectively. Payments are subject to increases at 5 to 10 year intervals based
upon the agreed or appraised fair market value of the leased premises on the
adjustment date. The following schedule indicates approximate future minimum
lease payments for these properties by year as of December 31, 2000 (in
thousands):
Future Minimum Ground Lease Payments
Years Ended December 31,
--------------------------
2001 $ 594
2002 594
2003 594
2004 594
2005 594
Thereafter 17,620
----------------
Total minimum payments $20,590
================
(3) Mortgage Loans Receivable
A summary of mortgage loans follows:
December 31,
----------------------------
2000 1999
------------- --------------
(In thousands)
First mortgage loans:
Industrial (2 loans in 2000 and 1999) $9,174 6,722
Undeveloped Land (1 loan in 1999) - 1,965
Other (1 loan in 2000 and 1999) 17 19
------------- --------------
$9,191 8,706
============= ==============
Included in the two industrial loans held at December 31, 2000 is
$4,565,000 for World Houston 10 which was repaid in January 2001. The weighted
average interest rate on the remaining loans is approximately 9.0%.
Deferred gains recognized on the payoff of mortgage notes receivable were
zero in 2000, $1,515,000 in 1999 and $383,000 in 1998.
(4) Investment in Real Estate Investment Trusts
The investment in real estate investment trusts (REITs) consists of the
following:
December 31, 2000 December 31, 1999
------------------------------ -------------------------
Estimated Estimated
Cost Fair Value Cost Fair Value
-------------- --------------- ----------- -------------
(In thousands)
Franklin Select Realty Trust $ - - 5,130 5,844
Pacific Gulf Properties - 2,983 9,910 9,864
Other 4,964 5,085 - -
-------------- --------------- ----------- -------------
$4,964 8,068 15,040 15,708
============== =============== =========== =============
During 2000, the Company received liquidating dividends from Franklin
Select Realty Trust and the first liquidating dividend from Pacific Gulf
Properties. The liquidating dividends received reduced the basis in these
investments to zero with the remainder recorded as gain on securities in the
accompanying 2000 consolidated statement of income. Pacific Gulf Properties has
announced that it is selling most of its assets and any further distributions
received by the Company will be recorded as realized gains when received.
(5) Notes Payable to Banks
The Company has a three-year $150,000,000 unsecured revolving credit
facility with a group of ten banks that matures in January 2002. The interest
rate is based on the Eurodollar rate plus 1.25% and was 8.00% on $92,000,000 at
December 31, 2000 and 7.50% on $77,000,000 and 7.44% on $8,000,000 at December
31, 1999. An unused facility fee of .25% is also assessed on this note.
EastGroup has a one-year $10,000,000 unsecured revolving credit facility
with Chase Bank of Texas that matured in January 2001. The loan was amended in
January 2001 to reflect a new maturity date of January 2002. The interest rate
is based on Chase Bank of Texas, National Association's prime rate less .75% and
was 8.75% on $10,000,000 at December 31, 2000 and 7.75% on $10,000,000 at
December 31, 1999.
The Company has a $15,000,000 unsecured discretionary line of credit with
Chase Bank of Texas. The interest rate and maturity date for each loan proceeds
are determined at the time of any advances by the Company and Chase. At December
31, 2000 and 1999, the outstanding balance for this loan was zero.
Total loan commitment fees of $37,500 were paid in 2000, $37,500 in 1999,
and $136,500 in 1998.
Average bank borrowings were $107,221,000 in 2000 compared to $104,335,000
in 1999 with average interest rates of 7.83% in 2000 compared to 6.56% in 1999.
Amortization of bank loan costs were $264,000 in 2000 and $251,000 in 1999.
Average interest rates including amortization of loan costs were 8.07% for 2000
and 6.80% for 1999.
(6) Mortgage Notes Payable
A summary of mortgage notes payable follows:
Carrying Amount
Of Securing Balance at December 31,
P&I Maturity Real Estate at -------------------------
Property Rate Payment Date December 31, 2000 2000 1999
- -------------------------------------- ------------- -------------- ----------- ------------------- ---------------- ---------------
(In thousands)
University Business Center 9.060% $85,841 04/01/00 $ - Repaid 04/00 8,477
Northwest Point Business Park 7.750% 32,857 03/01/01 6,079 3,837 3,930
University Business Center
(120 & 130 Cremona) 7.450% 74,235 02/28/02 10,760 8,380 8,637
Estrella Distribution Center 9.250% 23,979 01/02/03 4,975 2,461 2,518
Deerwood Distribution Center 8.375% 16,339 07/01/03 3,348 1,516 1,588
Eastlake Distribution Center 8.500% 57,115 07/05/04 9,247 4,164 4,480
56th Street Commerce Park 8.875% 21,816 08/01/04 3,753 1,987 2,069
Chamberlain Distribution Center 8.750% 21,376 01/01/05 3,715 2,372 2,423
Exchange Distribution Center 8.375% 21,498 08/01/05 3,002 2,175 2,247
Westport Commerce Center 8.000% 28,021 08/01/05 5,042 2,898 2,998
LaVista Apartments 8.688% 48,667 09/01/05 - Repaid 12/00 5,607
LakePointe Business Park 8.125% 81,675 10/01/05 9,526 10,437 10,563
Jetport, JetPort 515 & Jetport 516 8.125% 33,769 10/01/05 5,363 3,487 3,604
Huntwood Associates 7.990% 100,250 08/22/06 16,748 12,172 12,393
Wiegman Associates 7.990% 46,269 08/22/06 8,557 5,618 5,720
World Houston 1 & 2 7.770% 33,019 04/15/07 5,788 4,436 4,485
E. University, 7th St, 55th St,
Ethan Allen 8.060% 96,974 06/26/07 23,390 11,905 12,100
Lamar II Distribution Center 6.900% 16,925 12/01/08 6,390 2,090 2,147
Dominguez, Kingsview, Walnut,
Washington, Industry and Shaw 6.800% 358,770 03/01/09 61,197 44,945 46,149
Auburn Facility 8.875% 64,885 09/01/09 15,043 4,696 5,041
America Plaza, Central Green,
World Houston 3&4, 5, 6, 7&8, 9 7.920% 191,519 05/10/11 32,040 26,282 -
University Business Center
(125 & 175 Cremona) 7.980% 88,607 06/01/12 14,768 11,413 -
Kyrene Distribution Center 9.000% 11,246 07/01/14 2,744 1,053 1,091
North Shore Improvement Bonds 6.3-7.750% Semiannual 09/02/16 2,393 385 398
----------------------------------------------------
$253,868 168,709 148,665
====================================================
Approximate principal payments due during the next five years as of
December 31, 2000 are as follows (in thousands):
2001 $7,920
2002 12,452
2003 8,248
2004 8,993
2005 22,756
(7) Stockholders' Equity
Management Incentive Plan-Stock Options/Incentive Awards
In 1994, the Company adopted the 1994 Management Incentive Plan, and the
Plan was amended in 1999. As amended, the Plan includes stock options (50%
vested after one year and the other 50% after two years), an annual incentive
award and restricted stock awards.
Stock option activity for the 1994 plan is as follows:
Years Ended December 31,
------------------------------------------------------------------------------
2000 1999 1998
------------------------- --------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
------------- ------------- ----------- ------------ ------------ ------------
Outstanding at beginning of year 861,423 $17.680 645,633 16.600 668,758 16.490
Granted 50,750 20.766 239,000 20.320 7,000 20.670
Exercised (108,000) 16.578 (22,210) 14.340 (22,935) 14.170
Expired (89,250) 19.809 (1,000) 22.000 (7,190) 18.010
------------ ------------- -----------
Outstanding at end of year 714,923 17.801 861,423 17.680 645,633 16.600
============ ============= ===========
Exercisable at end of year 575,798 $17.156 618,923 16.640 497,391 15.450
Available for grant at end of year 292,705 - 445,093 - 29,388 -
Price range of options:
Outstanding $12.670-22.375 12.000-22.375 12.000-22.375
Exercised 12.000-22.000 12.000-18.170 12.670-17.920
Exercisable 12.670-22.375 12.000-22.375 12.000-22.375
The weighted average contractual life of the options outstanding as of December 31, 2000 was 6.43 years.
The annual incentive award program began in 1995 and the Compensation
Committee determines awards based on actual funds from operations per share
("FFO") compared to goals set for the year. The 2000, 1999 and 1998 awards were
expensed in these years and approximated $448,000, $435,000 and $469,000,
respectively. The awards were payable 60% in cash and 40% in stock of the
Company for 2000 and 1999 and two-thirds in cash and one-third in stock in 1998.
On December 5, 2000, under the 1994 Management Incentive Plan, the
Compensation Committee granted 181,250 shares of restricted stock to all
employees, effective January 1, 2000. The purpose of the plan is to act as a
retention device since it allows participants to benefit from dividends as well
as potential stock appreciation. The stock price on the grant date was $20.50.
The restricted period for the stock is 10 years and vesting is 20% at the end of
the sixth year through the tenth year or, if certain performance goals are
achieved, vesting could reach up to 40% at the end of the fourth year with 10%
at the end of the fifth year through the tenth year. The Company recorded
$3,716,000 as additional paid-in capital when the shares were granted, offset by
unearned compensation of the same amount. The unearned compensation was deducted
from stockholders' equity and is being amortized 10% each year over the
restricted period. Compensation expense of $372,000 was recognized in 2000.
During the restricted period, the Company will accrue dividends and will hold
the certificates for the shares; however, the employee can vote the shares.
Share certificates and dividends will be delivered to the employee as they vest.
Directors Stock Option Plan
The Company has a Directors Stock Option Plan, as amended in 1994, under
which an aggregate of 150,000 shares of common stock were reserved for issuance
upon exercise of any options granted. An additional 150,000 shares were reserved
in 2000. Under the Directors plan, each Non-Employee Director is granted an
initial 7,500 options and 2,250 additional options on the date of any Annual
Meeting at which the Director is reelected to the Board.
Stock option activity for the Director plan is as follows:
Years Ended December 31,
-----------------------------------------------------------------------------
2000 1999 1998
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
----------- ------------- ----------- ------------- ----------- -------------
Outstanding at beginning of year 96,750 $15.780 78,000 14.710 70,500 13.300
Granted 13,500 21.750 18,750 20.250 16,500 20.625
Exercised (14,250) 11.695 - - (6,750) 12.830
Expired - - - - (2,250) 19.375
----------- ---------- -----------
Outstanding at end of year 96,000 17.231 96,750 15.780 78,000 14.710
=========== =========== ===========
Exercisable at end of year 96,000 $17.231 96,750 15.780 78,000 14.710
Available for grant at end of year 143,250 - 6,750 - 25,500 -
Price range of options:
Outstanding $11.250-21.750 10.670-20.625 10.670-20.625
Exercised 10.670-14.580 - 11.250-14.580
Exercisable 11.250-21.750 10.670-20.625 10.670-20.625
The weighted average contractual life of the options outstanding as of
December 31, 2000 was 6.45 years.
Series A 9.00% Cumulative Redeemable Preferred Stock
In June 1998, EastGroup sold 1,725,000 shares of Series A 9.00% Cumulative
Redeemable Preferred Stock at $25.00 per share in a public offering. Net
proceeds of approximately $41,357,000 were used to repay advances outstanding on
the Company's line of credit. The preferred stock, which may be redeemed by the
Company at $25.00 per share, plus accrued and unpaid dividends, on or after June
19, 2003, has no stated maturity, sinking fund or mandatory redemption and is
not convertible into any other securities of the Company.
The Company declared dividends per share of Series A Preferred of $2.25,
$2.25 and $1.20 in 2000, 1999 and 1998, respectively.
Series B 8.75% Cumulative Convertible Preferred Stock
In September 1998, EastGroup entered into an agreement with Five Arrows
Realty Securities II, L.L.C. (Five Arrows), an investment fund managed by
Rothschild Realty, Inc., a member of the Rothschild Group, providing for the
sale of 2,800,000 shares of Series B 8.75% Cumulative Convertible Preferred
Stock at a net price of $24.50 per share. In December 1998, EastGroup sold
$10,000,000 of the Series B Preferred Stock to Five Arrows. The Company sold the
remaining $60,000,000 to Five Arrows in September 1999. In connection with this
offering, EastGroup has entered into certain related agreements with Five
Arrows, providing, among other things, for certain registration rights with
respect to the Series B Preferred Stock.
The Series B Preferred Stock, which is convertible into common stock at a
conversion price of $22.00 per share, is entitled to quarterly dividends in
arrears equal to the greater of $0.547 per share or the dividend on the number
of shares of common stock into which a share of Series B Preferred Stock is
convertible.
The Company declared dividends per share of Series B Preferred of $2.188 in
both 2000 and 1999.
Common Stock Repurchase Plan
During the third quarter 1998, EastGroup's Board of Directors authorized
the repurchase of up to 500,000 shares of its outstanding common stock. In
September 1999, EastGroup's Board of Directors authorized the repurchase of an
additional 500,000 shares of its outstanding common stock and an additional
500,000 shares in December 1999. The shares may be purchased from time to time
in the open market or in privately negotiated transactions. For the year ended
December 31, 2000, the Company repurchased 10,000 shares for $190,000 and a
total of 827,700 shares for $14,170,000 (an average of $17.12 per share) since
September 30, 1998.
Shareholder Rights Plan
In December 1998, EastGroup adopted a Shareholder Rights Plan designed to
enhance the ability of all of the Company's stockholders to realize the
long-term value of their investment. Under the Plan, Rights were distributed as
a dividend on each share of Common Stock (one Right for each share of Common
Stock) held as of the close of business on December 28, 1998. A Right was also
delivered with all shares of Common Stock issued after December 28, 1998 and
1.1364 Rights were delivered with all shares of EastGroup's Series B Cumulative
Convertible Preferred Stock issued after December 28, 1998. The Rights will
expire at the close of business on December 3, 2008.
Each whole Right will entitle the holder to buy one one-thousandth (1/1000)
of a newly issued share of EastGroup's Series C Preferred Stock at an exercise
price of $70.00. The Rights attach to and trade with the shares of the Company's
Common Stock and Series B Preferred Stock. No separate Rights Certificates will
be issued unless an event triggering the Rights occurs. The Rights will detach
from the Common Stock and Series B Preferred Stock and will initially become
exercisable for shares of Series C Preferred Stock if a person or group acquires
beneficial ownership of, or commences a tender or exchange offer which would
result in such person or group beneficially owning 15% or more of EastGroup's
Common Stock, except through a tender or exchange offer for all shares which the
Board determines to be fair and otherwise in the best interest of EastGroup and
its shareholders. The Rights will also detach from the Common Stock and Series B
Preferred Stock if the Board determines that a person holding at least 9.8% of
EastGroup's Common Stock intends to cause EastGroup to take certain actions
adverse to it and its shareholders or that such holder's ownership would have a
material adverse effect on EastGroup.
If any person becomes the beneficial owner of 15% or more of EastGroup's
Common Stock and the Board of Directors does not within 10 days thereafter
redeem the Rights, or a 9.8% holder is determined by the Board to be an adverse
person, each Right not owned by such person or related parties will then enable
its holder to purchase, at the Right's then-current exercise price, EastGroup
Common Stock (or, in certain circumstances as determined by the Board, a
combination of cash, property, common stock or other securities) having a value
of twice the Right's exercise price.
Under certain circumstances, if EastGroup is acquired in a merger or
similar transaction with another person, or sells more than 50% of its assets,
earning power or cash flow to another entity, each Right that has not previously
been exercised will entitle its holder to purchase, at the Right's then-current
exercise price, common stock of such other entity having a value of twice the
Right's exercise price.
EastGroup will generally be entitled to redeem the Rights at $0.0001 per
Right at any time until the 10th day following public announcement that a 15%
position has been acquired, or until the Board has determined a 9.8% holder to
be an adverse person. Prior to such time, the Board of Directors may extend the
redemption period.
Dividend Reinvestment Plan
The Company has a dividend reinvestment plan that allows stockholders to
reinvest cash distributions in new shares of the Company.
Fair Value of Stock Options
In accordance with SFAS No. 123, the following additional disclosures are
required related to options granted after January 1, 1995. The fair value of
each option grant is estimated on the grant date using the Black-Scholes option
pricing model with the following weighted-average assumptions used for 2000,
1999, and 1998, respectively: risk-free interest rates of 5.04%, 6.49%, and
5.54%; dividend yields of 12.13%, 9.75%, and 7.64%; volatility factors of 19.3%,
17.0%, and 15.5%, and expected option lives of five years for all years
presented.
The Company applies APB No. 25 and related interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for its
stock option plans. Had compensation cost been determined based on fair value at
the grant dates for awards under the plan consistent with the method prescribed
by SFAS No. 123, the Company's net income and net income per basic share would
have been reduced to the pro forma amounts indicated below:
----------- -- ----------- -- -------------
2000 1999 1998
----------- -- ----------- -- -------------
(In thousands, except per share data)
Net income available to common shareholders
as reported $26,504 32,229 27,266
Net income available to common shareholders
pro forma 26,414 32,058 27,056
Net income per basic share - as reported 1.70 2.01 1.67
Net income per basic share - pro forma 1.69 2.00 1.66
Weighted average fair value of options
granted during year .55 .97 1.20
Earnings Per Share
The Company applies SFAS No. 128, "Earnings Per Share," which requires
companies to present basic EPS and diluted EPS. Reconciliation of the numerators
and denominators in the basic and diluted EPS computations are as follows:
Reconciliation of Numerators and Denominators
----------- ---- -------------- --------------
2000 1999 1998
----------- ---- -------------- --------------
(In thousands)
Basic EPS Computation
Numerator-net income available to common shareholders $26,504 32,229 27,266
Denominator-weighted average shares outstanding 15,623 16,046 16,283
Diluted EPS Computation
Numerator-net income available to common shareholders plus
convertible preferred stock dividends ($2,246 in 1999) and
limited partnership distributions ($18 in 2000 and $48 in 1999) $26,522 34,523 27,266
Denominator:
Weighted average shares outstanding 15,623 16,046 16,283
Common stock options 147 112 140
Nonvested restricted stock 13 - -
Limited partnership units 15 32 9
Convertible preferred stock - 1,172 -
----------- ------------ --------------
Total Shares 15,798 17,362 16,432
=========== ============ ==============
The Series B Preferred Stock, which is convertible into common stock at a
conversion price of $22.00 per share, was not included in the computation of
diluted earnings per share for the years ended December 31, 2000 and 1998 due
its antidilutive effect.
Comprehensive Income
Comprehensive income comprises net income plus all other changes in equity
from nonowner sources. The components of comprehensive income for 2000, 1999 and
1998 are presented in the Company's Consolidated Statements of Stockholders'
Equity. The unrealized change in investment securities in 2000 and 1999 is net
of the 2000 and 1999 realized gains on real estate investment trust securities
included in net income as shown below:
2000 1999
-------------------------------
(In thousands)
Other comprehensive income:
Unrealized holding gains during the period $4,590 91
Less reclassification adjustment for gains included in net income (2,154) (30)
-------------------------------
Net unrealized change in investment securities $2,436 61
===============================
(8) Acquisitions
Ensign Properties, Inc. Acquisition
In March 1998, EastGroup acquired Ensign Properties, Inc., an independent
industrial developer in Orlando. This acquisition, which was accounted for under
the purchase method of accounting, allowed EastGroup to become self-managed in
its Florida markets. The purchase price of the acquisition amounting to
approximately $1,800,000 was allocated primarily to goodwill, development costs,
leasing commissions and other prepaid costs. The operating results of Ensign
Properties, Inc. have been included in the consolidated statements of income
subsequent to the date of acquisition. The pro forma impact related to the
acquisition would be immaterial to the consolidated financial statements.
Meridian VIII Acquisition
On June 1, 1998, the merger of Meridian VIII into a wholly-owned subsidiary
of EastGroup was completed. The acquisition was accounted for by using the
purchase method of accounting. For financial reporting purposes, the acquired
assets of Meridian VIII were assigned new cost basis amounts based on the
allocation of the purchase price of the assets. In general, the purchase price
to the Company consisted of the cash paid for Meridian VIII and the Company's
previous investment in Meridian VIII. The shares of Meridian VIII owned by the
Company were retired at the merger date. The operating results of Meridian VIII
have been included in the consolidated statements of income subsequent to the
date of acquisition.
Pursuant to the terms of its merger agreement with Meridian VIII,
EastGroup's wholly-owned subsidiary exercised options to acquire a sufficient
number of common and preferred shares of Meridian VIII such that it owned 90% of
all outstanding common and preferred shares. Prior to the exercise of the
options, EastGroup's subsidiary beneficially owned approximately 83.2% of the
outstanding voting securities of Meridian VIII. Following the exercise of the
options, Meridian VIII was merged into EastGroup's wholly-owned subsidiary, with
all outstanding common shares of Meridian VIII not held by EastGroup receiving,
as a result of the merger, $8.50 per share in cash and all preferred shares of
Meridian VIII not held by EastGroup receiving $10.00 per share in cash. The
consideration paid to the remaining common and preferred shareholders of
Meridian VIII was equivalent to that paid by EastGroup in its tender offer for
Meridian VIII's common and preferred shares which was completed in April 1998.
The total purchase price to EastGroup was approximately $102,000,000 which
included the assumption of Meridian VIII's outstanding indebtedness. As a result
of the merger, Meridian VIII's common and preferred shares have been removed
from registration under the Securities Exchange Act of 1934 and ceased to be
listed on the American Stock Exchange effective as of June 1, 1998.
The increase in net assets at the acquisition date, based on estimated
relative fair values, resulting from the acquisition was as follows (in
thousands):
Real estate properties $96,366
Cash 6,118
Accrued interest and other receivables 119
Other assets 124
Mortgage notes and interest payable (33,422)
Accounts payable and other liabilities (871)
------------
Total $68,434
============
The purchase price of the net assets acquired consisted of the following
(in thousands):
Acquisition of Meridian Shares $52,760
Merger costs 1,569
Prior investment in Meridian 14,105
-------------
Total $68,434
=============
The following unaudited pro forma combined results of operations give
effect to the Meridian VIII merger as if it had occurred on January 1, 1998:
(In thousands, except per share amounts) 1998
-----------------------------------------------------------------------
Revenues $80,022
==============
Net income available to common shareholders $25,566
==============
Net income per basic share $ 1.57
==============
Shares used in computation 16,283
==============
Net income per diluted share $ 1.56
==============
Shares used in computation 16,432
==============
In management's opinion, the unaudited pro forma combined results of
operations are not necessarily indicative of the actual results that would have
occurred had the transaction been consummated at the beginning of 1998 or of
future operations of the combined companies under the ownership and management
of the Company.
(9) Quarterly Results of Operations - Unaudited
----------------------------------------------- -----------------------------------------------
2000 1999
Quarter Ended Quarter Ended
----------------------------------------------- -----------------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31
(In thousands, except per share data)
Revenues $ 23,141 23,606 24,601 26,755 20,885 21,098 21,504 22,749
Expenses (16,177) (17,211) (17,667) (19,307) (15,373) (15,469) (15,865) (16,113)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before gain (loss)
on real estate investments 6,964 6,395 6,934 7,448 5,512 5,629 5,639 6,636
Gain (loss) on real estate
investments 1 620 94 8,056 1,451 224 13,978 (296)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before cumulative
effect of change in
accounting principle 6,965 7,015 7,028 15,504 6,963 5,853 19,617 6,340
Cumulative effect of change
in accounting principle - - - - (418) - - -
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income 6,965 7,015 7,028 15,504 6,545 5,853 19,617 6,340
Preferred dividends (2,502) (2,502) (2,502) (2,502) (1,189) (1,189) (1,246) (2,502)
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income available to
common shareholders $ 4,463 4,513 4,526 13,002 5,356 4,664 18,371 3,838
=========== =========== ============ =========== =========== =========== =========== ===========
BASIC PER SHARE DATA
Net income available to
common shareholders $ 0.29 0.29 0.29 0.83 0.33 0.29 1.15 0.24
=========== =========== ============ =========== =========== =========== =========== ===========
Weighted average shares
outstanding 15,569 15,624 15,643 15,656 16,303 16,076 16,006 15,805
=========== =========== ============ =========== =========== =========== =========== ===========
DILUTED PER SHARE DATA
Net income available to
common shareholders $ 0.28 0.29 0.29 0.76 0.33 0.29 1.11 0.24
=========== =========== ============ =========== =========== =========== =========== ===========
Weighted average shares
outstanding 15,732 15,785 15,828 19,022 16,429 16,245 16,724 15,941
=========== =========== ============ =========== =========== =========== =========== ===========
The above quarterly earnings per share calculations are based on the
weighted average number of common shares outstanding during each quarter for
earnings per common share and the weighted average number of outstanding common
shares and common share equivalents during each quarter for the earnings per
common share, assuming dilution. The annual earnings per share calculations are
based on the weighted average number of common shares outstanding during each
year for earnings per common share and the weighted average number of
outstanding common shares and common share equivalents during each year for
earnings per common share, assuming dilution.
(10) Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 2000 and 1999. SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
------------------------------- ---------------------------
2000 1999
---------------- -------------- ------------ --------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------- -------------- ------------ --------------
(In thousands)
Financial Assets
Cash and cash equivalents $ 2,861 2,861 2,657 2,657
Investment in real estate
investment trusts 8,068 8,068 15,708 15,708
Mortgage loans receivable 9,191 9,193 8,706 8,604
Financial Liabilities
Mortgage notes payable 168,709 175,729 148,665 142,716
Notes payable to banks 102,000 102,000 95,000 95,000
Carrying amounts shown in the table are included in the balance sheet under the indicated captions.
The following methods and assumptions were used to estimate fair value of
each class of financial instruments:
Cash and Cash Equivalents: The carrying amounts approximate fair value
because of the short maturity of those instruments.
Investment in Real Estate Investment Trusts: The carrying amount is the
fair value of this equity investment based on quoted market prices.
Mortgage Loans: The fair value of performing mortgage loans is either
estimated using discounted cash flows at current interest rates for loans with
similar terms and maturities or based on the estimated value of the underlying
collateral adjusted for the borrower's payment history and financial strength.
The fair value for nonperforming loans is based on the underlying collateral
value.
Mortgage Notes Payable: The fair value of the Company's mortgage notes
payable is estimated based on the quoted market prices for similar issues or by
discounting expected cash flows at the rates currently offered to the Company
for debt of the same remaining maturities, as advised by the Company's bankers.
Notes Payable to Banks: The carrying amounts approximate fair value because
of the variable rates of interest on the debt.
(11) SEGMENT REPORTING
The Company's reportable segments consist of industrial properties and an
other category that includes office buildings, apartments and other real estate.
The Company's chief decision makers use two primary measures of operating
results in making decisions, such as allocating resources: property net
operating income (PNOI), defined as real estate operating revenues less real
estate operating expenses (before interest expense and depreciation), and funds
from operations (FFO), defined as net income (loss) (computed in accordance with
generally accepted accounting principles (GAAP)), excluding gains or losses from
sales of depreciable real estate property, plus real estate related depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. Effective January 1, 2000, NAREIT clarified the definition of
FFO to include gains from sales of nondepreciable real estate (land). Gains on
land for 2000 have been included in FFO and gains on land from previous years
have not been included in FFO. Gains on land were $348,000 for 1999 and $44,000
for 1998. The Company uses FFO as a measure of the performance of its industry
as an equity real estate investment trust. FFO is not considered as an
alternative to net income (determined in accordance with GAAP) as an indication
of the Company's financial performance or to cash flows from operating
activities (determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's cash
needs, including its ability to make distributions. The table below presents on
a comparative basis for the three fiscal years reported PNOI by operating
segment, followed by reconciliations of PNOI to FFO and FFO to net income.
---------------- ------------ ------------
2000 1999 1998
---------------- ------------ ------------
(In thousands)
Property Revenues:
Industrial $90,176 77,677 61,417
Other 3,730 5,643 12,895
---------------- ------------ ------------
93,906 83,320 74,312
---------------- ------------ ------------
Property Expenses:
Industrial (21,055) (17,723) (14,414)
Other (1,304) (2,218) (4,914)
---------------- ------------ ------------
(22,359) (19,941) (19,328)
---------------- ------------ ------------
Property Net Operating Income:
Industrial 69,121 59,954 47,003
Other 2,426 3,425 7,981
---------------- ------------ ------------
Total Property Net Operating Income 71,547 63,379 54,984
---------------- ------------ ------------
Gain on securities 2,154 30 -
Gain on nondepreciable real estate investments 620 - -
Other income 2,043 2,886 2,416
Interest expense (18,570) (17,688) (16,948)
General and administrative (5,607) (4,519) (3,771)
Minority interest in earnings (535) (674) (757)
Dividends on Series A preferred shares (3,880) (3,880) (2,070)
Limited partnership unit distributions 18 48 -
---------------- ------------ ------------
Funds From Operations 47,790 39,582 33,854
Depreciation and amortization (23,449) (20,239) (16,625)
Share of joint venture depreciation and amortization 158 241 324
Gain on depreciable real estate investments 8,151 15,357 9,713
Limited partnership unit distributions (18) (48) -
Dividends on Series B convertible preferred shares (6,128) (2,246) -
Cumulative effect of change in accounting principle - (418) -
---------------- ------------ ------------
Net Income Available to Common Shareholders 26,504 32,229 27,266
Dividends on preferred shares 10,008 6,126 2,070
---------------- ------------ ------------
NET INCOME $36,512 38,355 29,336
================ ============ ============
ASSETS:
Industrial $668,053 616,078 532,869
Other - 6,919 15,762
---------------- ------------ ------------
668,053 622,997 548,631
Less accumulated depreciation (66,492) (46,829) (34,042)
---------------- ------------ ------------
601,561 576,168 514,589
---------------- ------------ ------------
Real estate held for sale 26,602 18,051 25,620
Less accumulated depreciation (3,628) (4,750) (8,794)
---------------- ------------ ------------
22,974 13,301 16,826
---------------- ------------ ------------
Mortgage loans 9,191 8,706 8,814
Investment in real estate investment trusts 8,068 15,708 5,737
Cash 2,861 2,657 2,784
Other assets 21,550 15,611 18,798
---------------- ------------ ------------
Total Assets $666,205 632,151 567,548
================ ============ ============
REAL ESTATE INVESTMENT CAPITAL EXPENDITURES
Acquisitions
Industrial $13,628 57,672 178,163
Other - - -
Developments
Industrial 40,661 45,846 25,511
Other - - -
(12) ACCOUNTING CHANGE
Organization Costs
In April 1998, Statement of Position (SOP) No. 98-5, "Reporting on the
Costs of Start-Up Activities," was issued. This SOP provides guidance on the
financial reporting of start-up costs and organization costs, and requires that
these costs be expensed as incurred effective for fiscal years beginning after
December 15, 1998. Unamortized organization costs of $418,000 were written off
in first quarter 1999 and accounted for as a cumulative effect of a change in
accounting principle. The accounting change reduced basic and diluted earnings
per share $.03 and $.02, respectively, in 1999.
(13) Subsequent Events
Subsequent to December 31, 2000, EastGroup purchased World Houston 10
(107,000 square feet) for $5,712,000. The purchase was funded with cash escrows
from tax deferred exchange transactions. As part of this transaction, the seller
repaid $4,682,000 to the Company on the outstanding mortgage loan receivable and
accrued interest for the World Houston 10 note.
(14) Related Party Transactions
EastGroup and Parkway Properties, Inc. currently share the services and
expenses of the Company's Chairman of the Board and his administrative
assistant.
In July 1999, EastGroup acquired the remaining 25% ownership interests in
Jetport Commerce Park and 56th Street Commerce Park in Tampa from our partner,
an officer of the Company, Anthony J. Bruno, for $3,588,000 giving the Company
100% ownership of these two complexes.
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
THE DIRECTORS AND STOCKHOLDERS
EASTGROUP PROPERTIES, INC.:
Under date of March 2, 2001, we reported on the consolidated balance sheets
of EastGroup Properties, Inc., and subsidiaries, as of December 31, 2000 and
1999, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 2000, which are included in the 2000 Annual Report on
Form 10-K. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related consolidated financial
statement schedules as listed in Item 14 (a)(2) of Form 10-K. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Jackson, Mississippi KPMG LLP
March 2, 2001
SCHEDULE III
REAL ESTATE PROPERTIES AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2000 (IN THOUSANDS)
Initial Cost
to the Company
-----------------------------------------------
Buildings
Description Encumbrances Land and Improvements
- -------------------------------------------------------------------------------------------------------------------
Real estate properties (c) and (d):
Industrial:
FLORIDA
56th Street $ 1,987 843 3,567
Airport Commerce - 1,257 4,012
Altamonte - 1,518 2,661
Benjamin I - 843 3,963
Blue Heron - 975 3,626
Chancellor Distribution - 291 1,711
Cypress Creek - - 2,465
Deerwood 1,516 1,147 1,799
Ellis Dist. Center - 540 7,513
Exchange Distribution 2,175 603 2,414
Interstate Commerce - 485 2,652
Jetport 517 & 518 - 541 2,175
JetPort Commerce Park 3,487 1,034 4,416
John Young Commerce Center II - 512 3,613
John Young Parkway - 497 2,444
La Quinta - 191 575
Lake Pointe 10,437 3,442 6,450
Linpro Distribution - 613 2,243
Lockhart Distribution Center - - 3,489
Meadows - 407 1,503
Palm River I - 540 2,131
Palm River II - 650 2,494
Palm River North II - 724 4,418
Phillips - 1,375 2,961
Premier Beverage - 1,110 6,126
Sample 95 II - 815 3,242
Sample I-95 - 1,565 6,262
Sunbelt - 1,034 5,056
Sunbelt II - 249 114
Walden II - 465 -
West Palm I and II - 635 2,542
Westlake Distribution Center - 613 4,223
Westport 2,898 980 3,800
Westside Dist. Center - 1,170 12,400
CALIFORNIA
Chestnut Distribution Center - 1,674 3,465
Dominguez Distribution (f) 7,355 2,006 8,025
Eastlake Distribution Center 4,164 3,046 6,888
Huntwood Associates 12,172 3,842 15,368
Industry Distribution (f) 15,517 10,230 12,373
Kingsview Industrial (f) 2,173 643 2,573
Main Street - 1,606 4,103
San Clemente - 893 2,004
Shaw Commerce (f) 9,752 2,465 11,627
University Business Center 19,793 5,517 22,067
Walnut Business Center (f) 5,613 2,885 5,274
Washington (f) 4,535 1,636 4,900
Wiegman Associates 5,618 2,197 8,788
Yosemite - 259 7,058
TEXAS
Ambassador Row - 1,156 4,625
America Plaza (h) 3,798 662 4,660
Butterfield Trail Industrial - - 19,842
Carpenter - 208 833
Central Green (h) 3,398 566 4,031
Founders Business Center - - 2,302
Glenmont I - 469 3,735
Interstate III - 520 2,008
Interstate Warehouses - 1,757 4,941
Lockwood Distribution Center - 749 5,444
Northwest Point 3,837 1,243 5,640
Rojas - 900 3,659
Stemmons Circle - 363 2,014
Venture Warehouses - 1,452 3,762
Viscount - 395 1,578
West Loop I - 465 1,872
West Loop II - 440 2,511
World Houston 1 and 2 4,436 660 5,893
World Houston 3,4,5 (h) 5,296 1,025 6,413
World Houston 6 (h) 2,398 425 2,423
World Houston 7 & 8 (h) 6,096 680 4,584
World Houston 9 (h) 5,296 800 4,355
World Houston Land (e) - 1,222 -
ARIZONA
35th Avenue - 418 2,381
51st Avenue - 300 2,029
55th Avenue Dist. Center (g) 2,233 912 3,717
7th Street Dist. Center (g) 910 373 1,490
Airport Distribution - 1,103 4,672
Broadway Industrial Center - 837 3,349
Broadway Industrial #3 (Wilson) - 775 1,742
Broadway Industrial #4 - 380 1,652
Chamberlain 2,372 506 3,564
East University I and II (g) 2,694 1,120 4,482
Estrella East 2,461 628 4,694
Fairmont - 455 482
Interstate Commons - 798 3,632
Kyrene 1,053 850 2,044
Metro Business Park - 1,927 7,708
Southpointe - - 3,982
TENNESSEE
Airpark - 66 263
Airpark Distribution - 250 1,916
Delp I & II - 919 3,667
Getwell - 151 603
JC Penney - 486 1,946
Lamar 2,090 1,332 5,398
Senator Street - 540 2,187
Senator Street II - 435 1,742
Southeast Crossing - 1,802 10,267
LOUISIANA
Elmwood Business Park - 2,861 6,337
Riverbend Business Park - 2,592 17,623
COLORADO
Rampart - 1,023 3,861
Rampart II - 230 2,977
Rampart III - 1,098 -
OKLAHOMA
Braniff Park West - 1,066 4,641
Lakeside Distribution - 120 1,154
Northpointe Commerce - 777 3,113
MISSISSIPPI
Interchange Business Park - 343 5,007
MICHIGAN
Auburn Facility 4,696 3,230 12,922
--------------------------------------------------------------------------
162,256 113,423 467,942
--------------------------------------------------------------------------
Industrial Development:
FLORIDA
Beach Commerce Center - 475 -
Orlando Central Park - lot 60 - 309 -
Palm River North III - 770 -
Palm River North Service Center - 235 -
Palm River South - 1,309 -
Sabal - 351 -
Sunport - 1,462 -
Walden - 337 -
Westlake II - 720 -
TEXAS
Glenmont II - 468 -
Techway Southwest I - 739 -
Techway Southwest II - 841 -
Techway Southwest III - 841 -
World Houston 11 - 586 -
World Houston Land - 3,685 -
ARIZONA
Airport II - 299 -
Interstate Commons II - 320 -
Interstate Commons III - 237 -
Kyrene II - 640 -
--------------------------------------------------------------------------
- 14,624 -
--------------------------------------------------------------------------
Operating Properties Held For Sale:
Industrial:
CALIFORNIA
Ethan Allen (g) 6,068 2,544 10,175
Nobel Center 385 543 -
TEXAS
109th Street - 110 867
World Houston land (e) - 690 -
TENNESSEE
Delp III - 130 530
--------------------------------------------------------------------------
6,453 4,017 11,572
--------------------------------------------------------------------------
Office Buildings:
CALIFORNIA
Los Angeles Corporate Center - 1,363 5,453
--------------------------------------------------------------------------
- 1,363 5,453
--------------------------------------------------------------------------
Total real estate owned (a)(b) $ 168,709 133,427 484,967
==========================================================================
SCHEDULE III
(CONTINUED)
Costs Capitalized Gross Amount at which
Subsequent to Acquisition Carried at Close of Period
- ---------------------------------- -------------------------------------------------
Buildings Accumulated
Capitalized and Depreciation Year Year
Costs Other Land Improvements Total Dec. 31, 2000 Acquired Constructed
- ------------------------------------------------------------------------------------------------------------------------------------
1,334 - 843 4,901 5,744 1,168 1993 1981/86/97
483 - 1,257 4,495 5,752 257 1998 1998
229 - 1,518 2,890 4,408 256 1999 1980/1982
54 40 883 4,017 4,900 529 1997 1996
640 - 975 4,266 5,241 275 1999 1986
16 - 291 1,727 2,018 291 1996/97 1996/1997
524 - - 2,989 2,989 361 1997 1986
1,159 - 1,147 2,958 4,105 757 1989 1978
420 - 540 7,933 8,473 780 1997 1977
772 - 603 3,186 3,789 787 1994 1975
279 - 485 2,931 3,416 417 1998 1988
151 - 541 2,326 2,867 208 1999 1981/1982
1,499 - 1,034 5,915 6,949 1,585 1993/94/95 1974/79/85
- - 512 3,613 4,125 134 1998 1999
282 - 497 2,726 3,223 244 1997/98 1997/98
190 - 191 765 956 278 1989 1974
2,337 - 3,442 8,787 12,229 2,703 1993 1986/87
434 3 616 2,677 3,293 449 1996 1986
738 - - 4,227 4,227 466 1997 1986
8 - 407 1,511 1,918 229 1999 1988
213 - 540 2,344 2,884 272 1997 1990
179 - 650 2,673 3,323 521 1997/98 1997/98
(2) - 724 4,416 5,140 46 1997/98 1999
1,942 - 1,375 4,903 6,278 1,218 1994 1984/95
125 - 1,110 6,251 7,361 342 1998 1998
- - 815 3,242 4,057 132 1998 1999
249 - 1,565 6,511 8,076 1,258 1996 1990
700 - 1,034 5,756 6,790 1,865 1989 1987
1,989 - 249 2,103 2,352 203 1997/98 1997/98
3,991 - 465 3,991 4,456 315 1998 1997/1998
(349) - 635 2,193 2,828 110 1998 1993
- - 613 4,223 4,836 260 1998 1999
1,174 - 980 4,974 5,954 912 1994 1983/87
1,661 - 1,170 14,061 15,231 1,433 1997 1984
- - 1,674 3,465 5,139 95 1998 1999
856 - 2,006 8,881 10,887 1,165 1996 1977
69 - 3,046 6,957 10,003 757 1997 1989
126 - 3,842 15,494 19,336 2,588 1996 1988
365 - 10,230 12,738 22,968 1,267 1998 1959
- - 643 2,573 3,216 356 1996 1980
- - 1,606 4,103 5,709 126 1999 1999
- - 893 2,004 2,897 168 1997 1978
343 - 2,465 11,970 14,435 1,152 1998 1978/81/87
1,147 3 5,520 23,214 28,734 3,206 1996 1987/88
149 - 2,885 5,423 8,308 834 1996 1966/90
177 - 1,636 5,077 6,713 558 1997 1996/97
273 - 2,197 9,061 11,258 1,158 1996 1986/87
27 - 259 7,085 7,344 458 1999 1974/1987
936 - 1,156 5,561 6,717 608 1998 1958/1965
- - 662 4,660 5,322 533 1998 1996
1,412 - - 21,254 21,254 2,488 1997 1995
93 - 208 926 1,134 92 1998 1958
10 - 566 4,041 4,607 413 1999 1998
63 - - 2,365 2,365 45 2000 1987
1 - 469 3,736 4,205 75 1998 1999
32 - 520 2,040 2,560 57 2000 1979
942 - 1,757 5,883 7,640 2,273 1988 1978
164 - 749 5,608 6,357 534 1997 1968/69
328 - 1,243 5,968 7,211 1,133 1994 1984/85
613 - 900 4,272 5,172 468 1999 1986
136 - 363 2,150 2,513 392 1998 1977
916 - 1,452 4,678 6,130 1,783 1988 1979
200 - 395 1,778 2,173 161 1998 1965
111 - 465 1,983 2,448 39 2000 1980
204 - 440 2,715 3,155 330 1997 1980
40 - 660 5,933 6,593 805 1998 1996
137 - 1,025 6,550 7,575 842 1998 1998
38 - 425 2,461 2,886 295 1998 1998
3,033 - 680 7,617 8,297 901 1998 1998
1,420 - 800 5,775 6,575 240 1998 1998
- - 1,222 - 1,222 - 2000 n/a
71 - 418 2,452 2,870 235 1997 1967
87 - 300 2,116 2,416 247 1998 1987
81 5 917 3,798 4,715 326 1998 1987
58 - 373 1,548 1,921 134 1998 1987
8 - 1,103 4,680 5,783 412 1998 1995
379 - 837 3,728 4,565 706 1996 1971
16 - 775 1,758 2,533 109 2000 1983
- - 380 1,652 2,032 25 2000 1986
13 - 506 3,577 4,083 368 1997 1994
86 - 1,120 4,568 5,688 406 1998 1989/87
82 - 628 4,776 5,404 429 1998 1988
36 - 455 518 973 42 1999 1971
54 - 798 3,686 4,484 236 1999 1988
10 - 850 2,054 2,904 159 1999 1981
565 - 1,927 8,273 10,200 1,339 1996 1977/79
1,695 - - 5,677 5,677 123 1999 1989
34 - 66 297 363 28 1998 1975
1 - 250 1,917 2,167 168 1998 1975
325 - 919 3,992 4,911 390 1998 1977
41 - 151 644 795 57 1998 1972
1 - 486 1,947 2,433 167 1998 1972
168 - 1,332 5,566 6,898 508 1998 1978/80
151 - 540 2,338 2,878 219 1997 1982
97 - 435 1,839 2,274 149 1998 1968
471 - 1,802 10,738 12,540 659 1999 1987/1997
497 - 2,861 6,834 9,695 1,325 1997 1979
512 - 2,592 18,135 20,727 2,711 1997 1984
422 - 1,023 4,283 5,306 1,458 1988 1987
85 - 230 3,062 3,292 547 1996/97 1996/97
4,638 - 1,098 4,638 5,736 111 1997/98 1999
481 - 1,066 5,122 6,188 931 1996 1974
109 - 120 1,263 1,383 223 1994 1986
1 - 777 3,114 3,891 199 1998 1996/1997
383 - 343 5,390 5,733 777 1997 1981
4 - 3,230 12,926 16,156 1,113 1998 1986
-------------------------------------------------------------------------------------------
49,444 51 113,474 517,386 630,860 66,492
--------------------------------------------------------------------------------------------
1,553 - 475 1,553 2,028 - 2000 2000
5 - 309 5 314 - 2000 n/a
2,952 - 770 2,952 3,722 - 1998 2000
972 - 235 972 1,207 - 1998 2000
5 - 1,309 5 1,314 - 2000 n/a
170 - 351 170 521 - 1998 1998
3,831 - 1,462 3,831 5,293 - 1999 1999
442 - 337 442 779 - 1997/98 1999
2,623 - 720 2,623 3,343 - 1998 1998
2,448 - 468 2,448 2,916 - 2000 1998
1,148 - 739 1,148 1,887 - 2000 2000
113 - 841 113 954 - 2000 n/a
113 - 841 113 954 - 1999 n/a
3,135 - 586 3,135 3,721 - 1999 1999
- - 3,685 - 3,685 - 2000 n/a
- - 299 - 299 - 2000 n/a
1,890 - 320 1,890 2,210 - 1999 2000
- - 237 - 237 - 2000 n/a
1,169 - 640 1,169 1,809 - 1999 2000
- ---------------------------------------------------------------------------------------------------------
22,569 - 14,624 22,569 37,193 -
- ---------------------------------------------------------------------------------------------------------
95 - 2,544 10,270 12,814 880 1998 1980
3,738 - 543 3,738 4,281 1,887 1987 1986
96 - 110 963 1,073 97 1997 1970
- - 690 - 690 - 2000 n/a
47 - 130 577 707 61 1998 1977
- ---------------------------------------------------------------------------------------------------------
3,976 - 4,017 15,548 19,565 2,925
- ---------------------------------------------------------------------------------------------------------
221 - 1,363 5,674 7,037 703 1996 1986
- ---------------------------------------------------------------------------------------------------------
221 - 1,363 5,674 7,037 703
- ---------------------------------------------------------------------------------------------------------
76,210 51 133,478 561,177 694,655 70,120
=========================================================================================================
(a) Changes in Real Estate Properties follow:
Years Ended December 31,
2000 1999 1998
-------------- ------------ ------------
(In thousands)
Balance at beginning of year $641,048 573,751 409,005
Real estate properties acquired - Meridian merger - - 96,366
Improvements 51,272 55,243 32,559
Purchase of real estate properties 13,628 57,672 81,797
Carrying amount of investments sold (11,293) (45,170) (45,976)
Write-off of depreciated assets - (448) -
------------ ------------ ------------
Balance at end of year (1) (2) $694,655 641,048 573,751
============ ============ ============
(1) Includes 20% minority interest in University Business Center and IBG
Wiegman Road Associates totaling $7,998,000 at December 31, 2000 and
$7,962,000 at December 31, 1999. Includes 25% minority interest in JetPort
Commerce Park and 56th Street Commerce Park and 20% minority interest in
University Business Center and IBG Wiegman Road Associates totaling
$10,089,000 at December 31, 1998.
(2) Does not include the $500,000 land purchase-leaseback held for sale at
December 31, 1998.
Changes in the accumulated depreciation on real estate properties follow:
Years Ended December 31,
2000 1999 1998
-------------- ------------ ------------
(In thousands)
Balance at beginning of year $51,579 42,836 32,312
Depreciation expense 21,354 18,640 15,239
Accumulated depreciation on assets sold (2,813) (9,897) (4,715)
Write-off of fully depreciated assets - - -
------------ ------------ ------------
Balance at end of year $70,120 51,579 42,836
============ ============ ============
(b) The aggregate cost for federal income tax purposes is approximately
$522,900,000. The federal income tax return for the year ended December 31, 2000
has not been filed and, accordingly, the income tax basis of real estate
properties as of December 31, 2000 is based on preliminary data.
(c) Reference is made to impairment losses on real estate investments in the
notes to consolidated financial statements.
(d) The Company computes depreciation using the straight-line method over the
estimated useful lives of the buildings (25 to 40 years) and other improvements
(3 to 10 years).
(e) The investment is not producing income to the Company as of December 31,
2000.
(f) EastGroup has a $44,945,000, nonrecourse first mortgage loan with
Metropolitan Life secured by Industry Distribution Center, Shaw Commerce Center,
Kingsview Industrial Center, Dominguez Distribution Center, Walnut Business
Center and Washington Distribution Center.
(g) The Company has an $11,905,000 nonrecourse first mortgage loan with
Prudential Life secured by East University I & II, 55th Avenue Distribution
Center, 7th Street Distribution Center and Ethan Allen Distribution Center.
(h) EastGroup has a $26,282,000, nonrecourse first mortgage loan with New York
Life secured by World Houston Distribution Centers 3 through 9, Central Green
Distribution Center and America Plaza Distribution Center.
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2000
(IN THOUSANDS)
Number of Interest Final Periodic
Loans Rate Maturity Date Payment Terms
------------ ---------------- --------------- -------------------
First mortgage loans (c):
INDUSTRIAL:
World Houston 10, Houston, Texas 1 9.00% 02/03 Interest monthly
Freeport, Houston, Texas 1 9.00% 12/02 Interest monthly
OTHER LOANS 1 8.50% 01/08 P&I monthly
------------
Total first mortgage loans 3
============
Principal
Amount of Loans
Subject to
Face Amount Carrying Delinquent
of Mortgages Amount of Principal or
December 31, 2000 Mortgages Interest (d)
---------------- ------------ -------------------
First mortgage loans (c):
INDUSTRIAL:
World Houston 10, Houston, Texas $4,565 $4,565 -
Freeport, Houston, Texas 4,609 4,609 -
OTHER LOANS 17 17 -
---------------- ------------ -------------------
Total first mortgage loans $9,191 $9,191 (a) (b) -
================ ============ ===================
Notes:
(a) Changes in mortgage loans follow:
Years Ended December 31,
2000 1999 1998
--------------------------------------------------------
(In thousands)
Balance at beginning of year $8,706 8,814 10,852
Advances on mortgage notes receivable 4,609 8,186 -
Payments on mortgage notes receivable (4,124) (10,139) (3,042)
Amortization of discount on loans, net - 330 621
Deferred gains - 1,515 383
---------------------------------------------------------
Balance at end of year $9,191 8,706 8,814
=========================================================
(b) The aggregate cost for federal income tax purposes is approximately
$9,191,000. The federal income tax return for the year ended December 31, 2000
has not been filed and, accordingly, the income tax basis of mortgage loans as
of December 31, 2000 is based on preliminary data.
(c) Reference is made to allowance for possible losses on real estate
investments in the notes to consolidated financial statements.
(d) Interest or principal in arrears for three months or less is disregarded in
computing principal amount of loans subject to delinquent principal or interest.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EASTGROUP PROPERTIES, INC.
By: /s/ David H. Hoster II
David H. Hoster II, Chief Executive
Officer, President & Director
March 14, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
* *
D. Pike Aloian, Director Alexander G. Anagnos, Director
March 9, 2001 March 9, 2001
* *
H. C. Bailey, Jr., Director Fredric H. Gould, Director
March 9, 2001 March 9, 2001
* *
David M. Osnos, Director John N. Palmer, Director
March 9, 2001 March 9, 2001
* /s/ N. Keith McKey
Leland R. Speed, Chairman of the Board * By N. Keith McKey, Attorney-in-fact
(Principal Executive Officer)
March 9, 2001
/s/ Bruce Corkern
Bruce Corkern, Sr. Vice President & Controller
(Principal Accounting Officer)
March 14, 2001
/s/ N. Keith McKey
N. Keith McKey, Executive Vice-President,
Chief Financial Officer and Secretary
(Principal Financial Officer)
March 14, 2001
EXHIBIT INDEX
The following exhibits are included in this Form 10-K or are incorporated
by reference as noted in the following table:
(3) Form 10-K Exhibits:
(a) Articles of Incorporation (incorporated by reference to Appendix B to
the Registrant's Proxy Statement dated April 24, 1997).
(b) Bylaws of the Registrant (incorporated by reference to Appendix C to
the Registrant's Proxy Statement dated April 24, 1997).
(c) Articles Supplementary of the Company relating to the 9.00% Series A
Cumulative Redeemable Preferred Stock of the Company (incorporated by
reference to the Company's Form 8-A filed June 15, 1998).
(d) Articles Supplementary of the Company relating to the Series B
Cumulative Convertible Preferred Stock (incorporated by reference to
the Company's Form 8-K filed on October 1, 1998).
(e) Articles Supplementary of the Company relating to the Series C
Preferred Stock (incorporated by reference to the Company's Form 8-A
filed December 9, 1998).
(f) Certificate of Correction to Articles Supplementary with respect to
Series B Cumulative Convertible Preferred Stock (incorporated by
reference to the Registrant's Form 10-K for the year ended December 31,
1998).
(10) Material Contracts:
(a) EastGroup Properties 1994 Management Incentive Plan, As Amended
(incorporated by reference to Appendix A of the Registrant's Proxy
Statement for its Annual Meeting of Shareholders held on June 2, 1999).
(b) EastGroup Properties 1991 Directors Stock Option Plan, As Amended
(incorporated by reference to Exhibit B of the Registrant's Proxy
Statement dated April 26, 1994).*
(c) Form of Change in Control Agreement that Registrant has entered into
with certain executive officers (Leland R. Speed, David H. Hoster II
and N.Keith McKey) (incorporated by reference to the Registrant's 1996
Annual Report on Form 10-K).*
(d) Investment Agreement dated as of September 25, 1998 between the Company
and Five Arrows Realty Securities II, L.L.C. (incorporated by reference
to the Company's Form 8-K filed October 1, 1998).
(e) Operating Agreement dated September 25, 1998 between the Company and
Five Arrows Realty Securities II, L.L.C. (incorporated by reference to
the Company's Form 8-K filed October 1, 1998).
(f) Agreement and Waiver between the Company and Five Arrows Realty
Securities II, L.L.C.(incorporated by reference to the Company's Form
8-K filed October 1, 1998).
(g) Credit Agreement dated January 13, 1999 among EastGroup Properties,
L.P.; EastGroup Properties, Inc.; Chase Bank of Texas, National
Association, as Arranger, Book Manager and Administrative Agent; First
Union National Bank, as Syndication Agent; PNC Bank, National
Association, as Documentation Agent; AmSouth Bank (successor to
Deposit Guaranty National Bank), as Co-Agent; and the Lenders
(incorporated by reference to the Registrant's Form 10-K for the year
ended December 31, 1998).
(22) Subsidiaries of Registrant (filed herewith).
(23) Consent of KPMG LLP (filed herewith).
(24) Powers of attorney (filed herewith).
(29) Agreement of Registrant to furnish the Commission with copies of
instruments defining the rights of holders of long-term debt
(incorporated by reference to Exhibit 28(e) of the Registrant's 1986
Annual Report on Form 10-K).
(99) Rights Agreement dated as of December 3, 1998 between the Company and
Harris Trust and Savings Bank, as Rights Agent (incorporated by
reference to the Company's Form 8-A filed December 9, 1998).
(b) None
*Indicates management or compensatory agreement.